LIC’s lacklustre stock market outing

The shares of Life Insurance Corporation of India have been underperforming since they got listed on May 17, and there is a consistent erosion of the market value of the country’s largest insurer. This has badly hit small investors, many of whom had put money in capital markets for the first time.

From its listed price of Rs 949, the scrip was sold at a discount of 8%, or Rs 860 a share on the inaugural day and since then, it has been a downhill ride. The highest level it touched was Rs 920. In less than a month, almost one-fourth of LIC’s market valuation has been wiped out. When the state-run insurer got listed, its market capitalisation was close to Rs 6 lakh crore, but now it has plunged to Rs 4.6 lakh crore.

During the company’s initial public offering (IPO), the scrip was sold at the top of the range and the issue was oversubscribed three times. This had helped the government, which holds a 100 per cent stake, garner Rs 20,557 crore by selling a 3.5% stake in the country’s largest public offering so far.

Retail investors had flocked to buy the scrip, as policyholders and employees were offered discounts. However, the qualified institutional buyer segment was not that attractive and it got subscribed mainly because the participation of domestic mutual funds was over 70%. The foreign investors were circumspect about the issue.

This downward spiral was mainly driven by two factors - the global uncertainty that most capital markets in emerging economies are facing and some ills plaguing the insurer. The Ukraine war and the interest rate hike in the US have made foreign portfolio investors (FPIs) wary about investing in Indian stock markets, as they fear it will remain volatile at least in the short term.

On the other hand, the recent rake hike by the US Federal Reserve and hints of more such hikes in the near term have made FPIs pull out their money from emerging markets and invest in the US. Data with depositories show that FPIs have so far withdrawn Rs 1.69 lakh crore this year. Another factor that has affected LIC’s scrip is its lacklustre quarterly results immediately after its market debut.

The insurer reported an 18 per cent fall in standalone net profit at Rs 2,372 crore for the fourth quarter ended 31 March 2022. The 13-month persistency ratio, which shows the number of policies being renewed, fell to 69.24 per cent from 73.24 per cent. However, analysts say that the insurer’s fundamentals are strong and investors should see LIC as a long-term investment.

It continues to be a leading insurer with a market share and reach that no private insurer can match in the near future. The LIC management should capitalise on these strengths and work towards providing the shareholders with good returns for their investments.