LIC drops 31%, m-cap falls by ₹1.86 lakh cr a month since debut against IPO price. Should investors worry?

Despite a strong business portfolio, promising growth prospects and even maintaining the leading position in the life insurance sector, these performances failed to offset the bearish market brutality for the Life Insurance Corporation of India (LIC). A month ago, when LIC stocks were listed, things only started to get bleaker for the stock market. A month later, LIC is now down more than 31% and its market value is over . wiped out 1.86 lakh crore at the mega IPO issue price.

On Friday, LIC shares hit a new low of 651.30 each on BSE. Stocks continued to extend their losses, following selling pressures in broader markets amid rising inflation, higher crude oil prices, weak rupee, calming outflows of foreign funds and a rate hike scenario.

With that, LIC shares closed today 654.70 each down through 14.50 or 2.17% on BSE. At the current price level, LIC’s market capitalization is at 4.14.097.60 crore.

LIC is currently the seventh most valued company on BSE in terms of market capitalization.

A month ago, on May 17, LIC made its market debut at a discount of more than 8% and was listed on: 872 each on BSE. After that week, LIC shares even reached a record high of 920 each. It held the position of the fifth most valued company in terms of market capitalization on BSE.

But then LIC stocks entered a hot zone and took some serious beating due to the bearish trend in the market.

LIC IPO issue price was up 949 with a market value of 6.00.242 crore.

A month later, compared to the issue price of the IPO, LIC shares have fallen by more than 31% and the market cap has been erased for an amount of 1,86,142.4 crore as of June 17.

LIC launched its IPO of 21,000 crore from May 4 to May 9. The issue is the largest ever in the history of the Indian IPO market. The IPO was successfully oversubscribed 2.95 times.

Many would like to believe that LIC stocks were listed at the wrong time, with the stock market moving into intense volatility due to inflationary pressures, geopolitical tensions, spikes in crude oil and other commodities prices, and signs of aggressive monetary policy. This is the main reason why LIC stocks failed to reach their potential levels. The current risk-out sentiment in the market has led to a drastic correction in the banking and financial sector. But can we call LIC a wealth destroyer?

Why LIC Shares Are Falling?

Manish Jeloka, Co-head of Products & Solutions, Sanctum Wealth said: “The share price decline can be attributed to the current risk-off sentiment in the market and the business inferiority of the company compared to its privately owned competitors.”

dr. VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, pointed out that LIC is not alone, even large wealth-creating companies have witnessed a long period of poor price performance.

Vijayakumar said: “It has been less than a month since LIC was put on the list, and therefore it is too early to conclude that LIC has become a wealth destroyer. Even large wealth-creating companies such as RIL, HDFC, Kotak Bank, Infosys and HUL have endured long periods of poor price performance.”

Geojit’s chief strategist added: “Currently, the financial sector is underperforming, mainly due to the sale of FPIs. This scenario will change as sentiment in the financial sector is lifted. LIC is also likely to outperform as market sentiment improves. “

“Poor Q4 FY 22 results also affected LIC’s performance,” added Vijaykumar.

Should Investors Be Worried?

Vijaykumar said: “If the coming results point to improvement, the stock can be re-purchased, causing the share price to rise.” He added: “The issue price of LIC at 1.1 times the embedded value was reasonable. From that perspective, the current market price is attractive. Long-term investors who have been allocated in the IPO can now buy a little more at the current price to average costs.”

Meanwhile, Jeloka said, “the long-term business improvement plan is in place and that should lead to better performance in the long run. After the fall, valuations have become even more attractive, providing a better margin of safety.”

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