One year on: LIC shares still trading at 40% discount to IPO price, while Sensex up 14%

LIC shares closed at Rs 567.40 on the BSE on Tuesday. During the past years, the BSE Sensex shot up by 14 per cent from — 54,318.47 on May 17, 2022 to 61,932.47 on May 16, 2023.

On May 17, 2022, LIC shares started trading at Rs 867.20 – at a discount of 8.62 per cent – on the BSE as against the issue price of Rs 949 per share, disappointing investors. The share has not recovered after the listing a year ago even though LIC is a market leader in an under-penetrated Indian life insurance market.

“The stock has been in free fall since its listing due to multiple headwinds like weak market conditions, the Adani-Hindenburg row and changes in tax policy,” said Cyril Charly, Research Analyst at Geojit Financial Services.
However, LIC is not alone in disappointing investors as a host of new age IPOs like Paytm, Cartrade Tech, PB Fintech, Nykaa and Star Health and Allied Insurance are trading at a discount to their IPO prices.

Though market regulator Securities and Exchange Board of India (Sebi) has since then tightened IPO disclosure norms, the IPO market is yet to recover from the valuation shock suffered by investors. However, analysts are optimistic about the LIC valuations.

“The management has emphasized increasing the share of non-participating policies in the portfolio mix, driving profitability. We expect LIC to have minimal impact on the tax implications due to its versatile client mix. The stock is currently trading at an appealing valuation, exhibiting a substantial discount compared to its industry peers.

While near-term performance may be shackled by sectoral uncertainties, long-term investors can anticipate a favourable return,” Charly said.

LIC’s value of holding in Adani group companies had fallen below the purchase price of Rs 30,127 crore in February this year when US-based Hindenburg Research came out with various allegations against the Adani group and market valuations of group companies plummeted.

“We believe there is a huge market as far as ‘Insuring the Uninsured’ is concerned. This will not only create opportunities for LIC but also for the other related entities like HDFC Life, ICICI Prudential and SBI Life. There might be a slight deceleration in growth due to the concerns outlined in the Budget by the Union Finance Minister. However, considering the long-term perspective, it remains a sound investment,” said an analyst with a leading broking firm.

LIC’s consolidated net profit rose sharply to Rs 8,334 crore in the third quarter as against Rs 235 crore in the same period a year ago as premium income improved and it moved Rs 5,670 crore to its shareholders’ fund to shore up its net worth.

While LIC’s IPO had received good response from policyholders, foreign investors were not very enthusiastic about the offer.

Bids from foreign portfolio investors (FPIs) were to the tune of Rs 2,291 crore in the main book and they also invested Rs 555 crore in the anchor book. LIC had offered a discount of Rs 60 for policyholders and Rs 45 for retail investors and employees. LIC’s market capitalisation which was at Rs 6 lakh crore at the IPO price of Rs 949 has now fallen to Rs 358,880 crore.

The government was earlier keen on launching the LIC IPO in March 2022 to meet its revised disinvestment target for the fiscal 2022-23. The issue size was delayed and cut from the earlier proposed Rs 65,000 crore after Russia attacked Ukraine and foreign investors started pulling out funds in the wake of rate hike plans of the US Federal Reserve, sending financial markets into a tizzy.