18 May “From Mega IPO to Mega Loss: LIC Investors lose Rs 2.5 Lakh Crore Just 1 Year!”-Should you buy now?

“Yearly Review – How Game-changing LIC IPO left many disappointed: What Next?”

When LIC, the insurance giant, announced its historic public listing, investors were buzzing with excitement. It was hailed as a game changer, following a series of successful IPOs in 2021, and retail investors saw it as a golden opportunity.

With its vast reach and dominance in the insurance market across the nation, LIC seemed poised for greatness.

However, dreams of soaring profits quickly turned into a nightmare. A year after its much-anticipated listing, LIC’s stock not only failed to reach the issue price of INR 949 but drifted even further away from it.

The magnitude of the loss is staggering—Rs 2.5 lakh crore, to be exact.

Yes, you read that right. LIC investors have seen their hard-earned money vanish into thin air.

Today, LIC’s market capitalization stands at a mere Rs 3.59 lakh crore, a stark contrast to the impressive Rs 6 lakh crore it boasted at the time of the IPO.

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Despite its listing, the Indian government still holds a massive 96.5% stake in LIC, leaving only a tiny portion of the stock available for trading, LIC has not been able to secure a spot in either the Nifty or Sensex indices, even though it ranks among the top 15 companies by market value.

The reality is harsh, and the once-promising investment has left investors reeling with disappointment.

The Shift in Shareholding Pattern:

The disappointment was not limited to retail investors alone. Mutual funds and foreign institutional investors (FIIs) also reacted to the underwhelming performance, leading to reduced stakes in LIC.

The latest shareholding pattern for March reveals that mutual funds’ ownership in LIC has declined from 0.66% in December to 0.63%. FII holding has also decreased from 0.17% in Q3 to 0.08% in Q4. On the other hand, retail investors have chosen to take advantage of the dip in prices, resulting in an increase in their ownership from 1.92% to 2.04% quarter-on-quarter.

However, despite the rise in retail ownership, the total number of retail investors in LIC has actually decreased.

At the time of its IPO, LIC had 39.89 lakh retail investors, defined as those with investments below Rs 2 lakh. In the March quarter, the number of retail investors has dwindled to approximately 33 lacks, indicating a loss of 6.87 lakh investors within a year.

Retail investors seem to be attempting to average down their losses in LIC, hoping that the company will turn around and perform better in the future. They chose to see this as an opportunity to “buy the dip,” believing in the potential for a rebound. However, the question still lingers:

Will LIC’s mega IPO ever live up to its initial hype, or will it remain a disappointment for investors?

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Reasons Behind LIC’s Underwhelming IPO Performance

Market Environment in 2022:

-LIC IPO subscription was lower than expected due to dampening market conditions.

-Market volatility affected investor sentiment, leading to fewer subscriptions.

-The IPO failed to get a good listing due to lower investor demand.

New Tax Proposal:

-The situation worsened for LIC shares following the introduction of a new tax proposal in the Union Budget.

-The proposal specifically targeted higher premium annuity products, affecting LIC’s product offerings and potentially reducing demand.

-Not only LIC but peers like HDFC Life Insurance, ICICI Prudential Life Insurance, and Max Financial Services have also remained flat or underperformed.

-SBI Life Insurance is among the few life insurance companies that have gained in the past 12 months.

Weak Earnings Performance:

-LIC’s earnings have been on the weaker side since its listing.

-The lack of positive developments has failed to improve investor sentiment towards the stock.

-Stronger earnings usually improve the stock outlook, but LIC has not reported any positive developments to cheer up investors.

Absence of Significant Dividends:

-LIC’s failure to announce substantial dividends has diminished investor interest in its shares.

-The company has only declared a single dividend of Rs 1.50 per equity share in May 2022, further disappointing investors.

-The lack of attractive dividend payouts has reduced the appetite for LIC’s stock among investors.

Adani-Hindenburg Episode:

-LIC’s stock suffered during the Adani-Hindenburg controversy.

-After the scathing report by US short-seller Hindenburg Research against the Adani Group, LIC faced criticism for its ownership stakes in the conglomerate.

-LIC issued a clarification in response, but the episode generated panic among investors, impacting LIC’s stock price.

-It’s important to note that LIC’s stock was already facing pressure and declining when it became entangled in the Adani-Hindenburg saga.

Key Fundamentals:

• Market Cap ₹ 3,60,525 Cr.
• Current Price ₹ 570
• High / Low ₹ 920 / 530
• Stock P/E 14.2
• Industry PE49.0
• PEG Ratio 1.13
• Dividend Yield 0.26 %
• ROCE 142 %
• ROE 48.2 %
• OPM-16.6 %
• Qtr Profit Var 2,596 %
• Qtr Sales Var 13 %
• Free Cash Flow₹ -3,593 Cr.

Recommendations from Analysts and Experts

Despite the year-long setback, many analysts remain confident that the stock will bounce back. According to Trendlyne data, Out of the 15 analysts, a majority 12 of them have given buy calls while the remaining 3 recommend a hold, on LIC.

Gaurang Shah, Senior Vice President at Geojit Financial Services:

-Shah expresses confidence in LIC’s long-term prospects, recommending a buy with a focus on the long-term horizon.

-He highlights the potential in the “Insuring the Uninsured” market, not only benefiting LIC but also related entities like HDFC Life, ICICI Prudential, and SBI Life.

Cyril Charly, Research Analyst at Geojit Financial Services:

-LIC’s management aims to increase the share of non-participating policies in its portfolio mix to drive profitability.

-Charly expects LIC to have minimal tax implications due to its versatile client mix.

-The stock is currently trading at an appealing valuation, exhibiting a substantial discount compared to industry peers.

-Despite short-term sectorial uncertainties, long-term investors can anticipate a favorable return on their investment in LIC.

Ganesh Dongre of Anand Rathi:

-Dongre observes a positive trend in LIC’s stock on the weekly charts, indicating a breakout from a bearish channel pattern.

-He mentions that the momentum indicator MACD has shown an upward reversal, further supporting the positive outlook.

-Dongre suggests buying LIC with a stop loss of Rs 535 and a target price of Rs 610 in the coming weeks.

These recommendations from industry experts highlight the potential and positive outlook for LIC’s stock. They emphasize the long-term perspective and anticipate a rebound in LIC’s performance, providing encouragement for investors considering an investment in the company.

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies are their own and not that of the website or its management. Aceink.com advises users to check with certified experts before taking any investment decisions.