LIC’s IPO anchor investors haven't given up on insurer despite heavy losses

(Representative Image)

Life after listing for the country’s largest life insurance company, Life Insurance Corporation of India, has been painful, full of doubts and of little hope.

Shares of the insurance giant have seen their value shrink 24 percent since their listing on May 17. While the stock has seen some recovery of late, at one point, it was quoting at a discount of 31.5 percent to its issue price of Rs 949.

Safe to say, the world’s third-largest life insurer in terms of premium has lost money for all sets of investors. Yet, the company can find solace in the fact that the majority of the mutual funds that participated in its anchor book have held on to their confidence despite the prevalence of high skepticism among other investors and analysts.

LIC raised Rs 5,627 crore from anchor investors by allotting them 59.3 million shares in the run-up to its initial public offering (IPO).

Anchored to LIC

Of the 15 mutual funds which took a piece of the insurer ahead of the IPO, seven have held onto their shares, while two—HDFC Mutual Fund and IDFC Mutual Fund—have added to their holding after the anchor lock-in period ended in June, data compiled by IIFL Securities shows.

The anchor investors of the company have faced the heaviest burden of the stock’s underperformance, as they were issued shares at Rs 949 apiece as against policyholders and retail investors who were given a discount to the issue price.

Among the mutual funds which have kept their holding in the insurer unchanged are SBI Mutual Fund, ICICI Prudential Mutual Fund, and UTI Mutual Fund.

Six mutual funds which participated in the anchor book of LIC chose to cut some of their losses after the lock-in period ended.

Kotak MF, Axis MF, Nippon India MF and others sold shares worth Rs 321 crore in June, the data shows.

Also Read: Embedded value determination expected to be completed by June end, says LIC Chairman MR Kumar

Out of the six, Sundaram Mutual Fund was the only asset manager to exit its holding in the life insurance company, having taken double-digit loss on its investment.

Cloudy outlook

Going ahead, prospects of those mutual funds that have held on to their investments recovering their losses remain bleak, with brokerages divided in their outlook and the consensus price target for the next 12 months at Rs 867, sharply below the issue price.

Brokerages like JP Morgan India and Motilal Oswal Financial Services have been the outliers, calling investors to take exposure on the stock after an “unduly harsh” correction since listing.

“We find the value compelling even adjusting EV lower for market declines, and tacking on an additional 15 percent discount to fair value,” JP Morgan India said in a note last month.

At a time when investors are extremely cautious about their investment bets in the face of continued macro-economic uncertainties, domestic mutual funds holding LIC’s hand through this tough time may just be what the company needs.