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Tepid listing of LIC shares leaves investors poorer by over Rs 50,000 crore

At close, the stock settled at Rs 872.70 on the BSE, down 8.04% from issue price of Rs 949, while its mcap stood at Rs 5.52 trillion

May 18, 2022 / 06:15 AM IST
 
 
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Investors of Life Insurance Corporation of India (LIC) lost over Rs 50,000 crore on the stock’s debut on May 17. It listed at Rs 867.20 per share, an over 8.5 percent discount to its issue price, after the firm's initial public offering was oversubscribed nearly three times last week.

The firm raised around Rs 21,000 crore and was valued at Rs 6.01 trillion at its upper price band of the issue of Rs 949 a share.

At close of trade on May 17, the stock settled at Rs 872.70 on the BSE, down 8.04 percent from its issue price, taking its market capitalisation to Rs 5.52 trillion. After opening at Rs 867.20, the stock touched a high and low of Rs 920 and Rs 860.10, respectively.

With the listing, policyholders and employees also saw their investments turn negative. LIC had offered a discount of Rs 60 to eligible policyholders and a rebate of Rs 45 to retail investors and employees, translating into an issue price of Rs 889 a share for policyholders and Rs 904 for retail investors and employees.

Brokerage firm Macquarie has initiated coverage on LIC with a neutral rating and kept its target price at Rs 1,000 a share.

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Also read: LIC stock lists at over 9% discount; what should investors do?

Corrections in the equity markets globally seem to have hit the listing for the biggest public issue in Indian capital market history.

The situation was worsened by mounting inflationary pressure in India, stricter lockdowns imposed in China to combat Covid outbreak leading to fears of its economy taking a blow and having a knock-on effect on the world economy and global supply chains, and an unabated war on Ukraine by Russian forces that has led to a spike in commodity prices.

While a lower valuation compared to peers is positive for LIC, accumulated losses of Rs 6,028 crore, falling market share, weak digital presence and the perception that not all decisions taken by the largest life insurer in the country are in sync with shareholder interests are worrying analysts.

Also  read: LIC to focus on boosting policyholders’ returns, says chairman

Analysts point out that shares of public sector undertakings that are listed on stock exchanges by way of disinvestments have a perception problem to begin with. That’s because these companies are seen as having an objective of social good over wealth creation, which creates a negative impression in the minds of investors and in turn affects the valuation matrix. Hence, it is no surprise that PSU IPOs have historically been lacklustre and have not turned into blockbusters.

According to Bloomberg research, LIC will become the second-worst listing among 11 firms that listed globally and which raised over $1 billion this year. ASR Microelectronics Co Ltd in Shanghai, which raised a little over $1 billion, listed on January 14 at a nearly 34 percent discount.

Despite the fall on the listing day, some analysts are positive on the stock, saying LIC is a typical blue-chip company that is expected to give steady returns over a long period of time and, therefore, returns over a day are not relevant. It is expected to remain quite attractive for investors, they hold.

“Investors should not look to exit at current levels and hold the stock from a medium- to long-term perspective. We believe LIC continues to be a solid bet in the long run as it is a play on the growth story of the underpenetrated life insurance industry. Its sustained market leadership position, robust pan-India distribution network, and shifting focus towards profitable products, thus supporting margins and improving persistency ratios, will collectively make LIC an attractive pick from a long-term perspective” said B Gopkumar, MD and CEO, Axis Securities.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.​
Ravindra Sonavane
first published: May 17, 2022 05:47 pm
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