LIC’s post-listing underperformance can largely be attributed to a lack of investor confidence in its governance and transparency, says Vikas Khemani, founder and CIO of Carnelian Asset Advisors said in an interview with N Mahalakshmi on the Wealth Formula.
Despite its attractive valuations based on market-cap-to-embedded-value metrics, LIC has struggled to attract sustained investor interest. "LIC, it's a very large market cap, very low floating stock," Khemani explained. "And unfortunately, you know, the experience has not been so great post-listing. And there's no institutional investor which has kind of taken anchor and lead in it."
He further emphasised that the issue lies in governance, rather than just supply concerns. Some experts have been saying that the government's divestment in the stock will create a continuous supply overhang capping its upside. Moneycontrol reported last week that LIC is one of the listed companies that will see stake sale by the government this fiscal.
But Khemani says there are other reasons for LIC’s underperformance. Khemani added, "I think probably it's an ability to convince investors that this is, well governed, well-run independent machine. Government, you know, has let it go. It's not a strategic asset."
When asked why LIC hasn’t undergone a transformation similar to public sector banks like State Bank of India (SBI), Khemani explained, a public sector bank like SBI has been 'a great flag bearer of a great organisation.' "LIC has not somehow got that… maybe it's because of transparency, maybe because of governance framework."
Addressing the broader sector challenges, Khemani concluded, "Partly, it is to do with the sector as well. Today, the sector also has a lot of regulatory headwind. And, when your market share is so large, the only thing that can happen is you lose."
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