It was mostly expected that LIC stock would make tepid entry into the stock market and it happened. The stock of Life Insurance Corporation of India (LIC) was listed at ₹867.20 on BSE, an 8.6 percent discount from its IPO price of ₹969. On NSE as well, it listed at an 8.11 percent discount at ₹872.
LIC IPO was one of the most successful IPOs of the recent times. The IPO, which opened for subscription on May 4 and ended on May 9, was oversubscribed 2.95 times. It received bids worth ₹43,933.5 crore till May 9, the final day of bidding, which was more than double the issue size.
The government raised ₹21,000 crore by selling 3.5 percent of its holdings in the largest initial public offering (IPO) in the history of India's primary markets.
What should you do with LIC stock?
LIC is the country's largest asset manager with an asset under management (AUM) of ₹40.1 lakh crore which is 1.1 times more than the AUM of the Indian mutual fund industry.
Its weak listing may make short term investors worries, but the long term view of the stock remains positive.
“Though LIC listing has been below the issue price of ₹949, given the attractive valuations and stability in the markets, we expect some buying interest in the stock both from retail and intuitional investors. Since large amount of money has been released post listing of LIC, part of this money could get diverted into equity markets,” said Hemang Jani, Head - Equity Strategy, Broking and Distribution, Motilal Oswal Financial Services.
For long term investors
The company's market reach is its biggest stregth which is a positive for the long term investors, but in the short term market headwinds may weigh on the stock.
Santosh Meena, Head of Research, Swastika Investmart believes India's highly underserved life insurance market is still in its infancy and is well positioned to capitalize on the enormous growth potential.
"LIC has a number of competitive advantages, including a strong brand value, a massive network of agents, and an enviable distribution network. Additionally, the company's issue was priced at a Price to Embedded Value of 1.1 times, providing valuation comfort, so we recommend investors ignore the negative listing and stick with the company for the long term. Another point we'd like to make is that investors should be aware that insurance is a long-term business, therefore wealth development and compounding occur only over time," said Meena.
Yash Gupta, Equity Research Analyst, Angel One pointed out that at the current prices, LIC is trading at a P/EV (embedded value) of nearly 1.08 times which is at a significant discount to other listed private life insurance companies line HDFC Life, ICICI Pru Life and SBI Life.
"As expected, given the adverse market conditions listing has been muted for LIC. However, cheap valuations as compared to other listed players offer comfort and investors with a longer time horizon can hold on to their positions while retail traders with a short term view can exit their positions in case there is any upside movement over the next few days," said Gupta.
B Gopkumar, MD & CEO, Axis Securities is of the view even though LIC debuted at a slight discount to its issue price, investors should not look to exit at current levels and hold the stock from a medium to long-term perspective.
"We believe LIC continues to be a solid bet in the long run as it is a play on the growth story of the under-penetrated life insurance industry. Its sustained market leadership position, robust pan-India distribution network, and shifting focus towards profitable products, thus supporting margins and improving persistency ratios, will collectively make LIC an attractive pick from a long-term perspective," said Gopkumar.
For short term investors
LIC’s weak listing can be attributed to high volatility in the markets and negative market sentiments. Majority of big IPOs have not given a strong listing debut gains. Considering previous trends, LIC has continued to take the same path with listing at a discount.
Mohit Nigam, Head - PMS, Hem Securities believes that personal savings and awareness regarding insurance will increase enabling the sector to outperform in the long run and will indirectly benefit LIC as it is the market leader in this sector.
"We feel long term investors should continue to hold the scrip while short-term investors can wait to enter at a lower price," said Nigam.
Akhilesh Jat, analyst at CapitalVia Global Research underscored one who has invested for the long term can hold the position as the insurance business is long-term in nature. In the short term, we may see some correction ahead of the market volatility. Those who missed can buy on dips for the long term only.
The company is synonymous with insurance in India and enjoys a phenomenal brand recall. Parth Nyati, Founder, Tradingo, made a point that India’s highly underpenetrated life insurance space is still at a nascent stage and is attractively positioned to capture the huge growth opportunity.
"LIC enjoys many competitive advantages like strong brand value, extremely large scale of operations, a huge network of agents, and an envious distribution network, further, the company’s issue was priced at a Price to Embedded value of 1.1 times, providing a valuation comfort, so we suggest investors to stay with the company for the long term despite the negative listing," said Nyati.
"Those who applied for listing gains can maintain a stop loss of ₹800. New investors can take advantage of the dips to accumulate this share for the long term. We would like to add that the company's further downside will be limited due to low float post listing," Nyati said.
Vinod Nair, Head of Research at Geojit Financial Services said the subdued listing of LIC is in-line with expectations in context to the drop in market dynamics from the opening of the IPO to the listing date.
"The listing price has fallen in tandem with the fall of insurance sector valuations, maintaining the discount of about 70 percent to the industry’s average," said Nair.
"We believe that LIC is a decent investment opportunity in the short to medium-term considering its strong market presence, improvement in future profitability due to the changes in surplus distribution norms and strong sector growth outlook. LIC can perform well when we have a bounce in the market and positive performance in the insurance sector," Nair said.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies and not of MintGenie.