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The IPO of Life Insurance Corporation of India was among the most awaited IPOs ever. People showed overwhelming interest in the issue, but the stock of LIC has not been performing according to people's expectations. So, this begs us to ask the question;
Was investing in LIC a mistake?
The largest IPO in Indian history, with an issue size of around Rs 21,000 crores, was subscribed 3x times and received funds from several anchor investors, both national and international. The shares of the insurance giant had listed on the bourses on 17th May 2022 and the shares have been declining ever since then.
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The shares opened at a discounted price of Rs 874.50 per share, 7.85% lower than the set price of Rs 949 per share. The mega IPO closed 7.8% below its offer price at Rs 875.25 per share on its first day itself.
The second day had brought some hope as the share witnessed a gap-up opening but bears overpowered the bulls once again as the share lost over 1% on the second day. The third and fourth days were even worse as the share lost 3% and 2.6% respectively.
On 30th May, the company announced its Q4 results wherein it disclosed a 17% YoY contraction of profits and declared a dividend of Rs 1.5 per share (15%). This led to another selling frenzy as the stock witnessed a full gap-down opening and fell over 2%. The stock closed at Rs 800.25 on Friday, wiping out well over Rs 80,000 crores of its market cap and registering a loss of 15.67% for investors.
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What's shocking is the fact that the Nifty 50 index jumped 2.6% the day LIC was listed. The index also registered a surge of 2.9% on Friday when LIC dropped 2.6%. Some suggest that the stock debuted at the wrong time as volatility is extremely high amid rising inflation and geopolitical tensions.
Should you be investing in LIC now?
We at Jobaaj feel that the IPO came at a bad time. The geopolitical conditions are dire as Ukraine is still under assault from the Russian army while Sweden and Finland have also applied to be a part of NATO, a decision that could trigger Russian retaliation. Moreover, the Wholesale Price Index (WPI) rose 15% in April, the highest jump since April 2013, while retail inflation in April was 7.79%, the highest since May 2014. These factors tend to hurt the risk appetite of investors as well as affect the operations of companies.
LIC is the fifth-largest insurer globally and the largest insurer in India, having a market share of 62% in the Indian insurance marketplace. The company has been in operation for more than 6 decades and is currently one of the world's cheapest insurance stocks.
Moreover, the company has announced that it plans to avoid excessive investment risks and strengthen its corporate governance after facing scrutiny over its performance at the stock exchanges. Some brokerages are of the opinion that global inflationary pressures and lower risk appetite have adversely affected the stock in the short term.
Furthermore, the company was valued as the 2nd most valued brand in 2020-21 alongside several other notable awards. Its profits have seen robust growth and its coverage has significantly improved throughout the years. The company is a behemoth that no one can compete within India.
Our country presents a huge opportunity in the field of insurance since the average insurance coverage in India is lower than the global average. Being a household name, the company will have a competitive advantage in the upcoming insurance boom in India. The share is passing through a rough phase but we feel it will persist and give good returns to investors in due course of time.
Note: This article is a personal view-point and is not supposed to be a buy-sell recommendation!
Article by Aman Agarwal.
This news piece is brought to you in association with jobaaj.com
