Buy, Sell or Hold, What Should LIC Investors Do Now?
Shares of life Insurance Corporation of India (LIC) traded at Rs 865 at a 9 per cent discount to its issue price of Rs 949 on Tuesday, May 17. The initial public offering (IPO) of the nation’s largest insurance company saw an overwhelming response from investors during the underwriting period.
The public issue was booked 2.95 times above the Rs 16.20 crore on offer. LIC IPO received bids of over Rs 47.83 crore against the total issue size of over Rs 16.20 crore, according to data available on the National Stock Exchange (NSE). However, global and domestic market sentiment has dampened the euphoria surrounding the mega IPO.
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“The valuation of LIC’s initial public offering is attractive considering its strong market presence, improved profitability due to changes in surplus distribution rules and the strong growth outlook for the sector. Therefore, LIC can do well as long as we get a bounce in the market.
We were expecting listing gains due to LIC’s discounted valuations compared to the private life insurance player,” said Vinod Nair, head of research at Geojit Financial Services. However, overall market sentiment has changed, which will affect the LIC’s performance in the short to medium term, he added.
What LIC Policy holders Should Do?
“A risk-averse, first-time investor/policyholder should take a cautious view of LIC’s performance. While risk takers can buy and hold in the short or medium term, depending on the market trend. We are more positive about long-term private life insurers due, in particular, to LIC’s hurdles: declining market share, lower short-term persistence ratios, and below-average margins,” Nair explained.
“LIC policyholders can sell 25 percent of the allowance to record listing gains and keep 75 percent long-term, as the LIC IPO is believed to be at a significant discount compared to other publicly traded private life insurance companies such as HDFC Life, ICICI Prudential Life Insurance and SBI Life.
While LIC valuations appear to be cheap compared to publicly traded private player investors, they should note that LIC has a lower VBN spread of 9.3 percent in 9MFY2021 compared to private player listed. they have VNB margins of 25-27 percent.
This is largely due to a higher proportion of low-margin group and equity insurance products in the LIC portfolio,” said Yash Gupta, equity research analyst at Angel One Ltd.
“As observed, the majority of big IPOs have not given strong listing debut gains. Considering previous trends, LIC has continued to take the same path with listing at a discount of over 8 per cent from 949 to 872 at NSE on its listing day. We believe 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 Mohit Nigam, Head – PMS, Hem Securities.
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