Why LIC share continues to struggle a year after IPO
What's the story
One year ago today, Life Insurance Corporation of India (LIC), India's largest insurer, made its debut on the stock exchanges. It was touted as a big-bang listing that would change India's equity market. However, things haven't worked out the way LIC or its investors hoped. A year later, it is trading at 40% below its IPO price. What led to this downfall?
IPO
LIC debuted at a discounted price on the bourses
LIC made its debut on the bourses on May 17, 2022. It started trading at Rs. 867.20 on the Bombay Stock Exchange (BSE), which was an 8.62% discount over its issue price of Rs. 949. The insurer's debut disappointed investors, especially after the excitement surrounding it. However, analysts remained upbeat about the largest public listing in India's history.
Current
The insurance behemoth has failed to recover
Unfortunately, the insurance behemoth has failed to live up to expectations. One year after listing, LIC's stock is yet to touch the issue price. In fact, it has only drifted further. It is currently trading around Rs. 570 on BSE, down by 40% from the issue price. Meanwhile, the company's market valuation fell from Rs. 6 lakh crore to nearly Rs. 3.6 lakh crore.
Reason
Market factors affected LIC's debut
LIC's business fundamentals have remained strong in the past year. Additionally, it remains the market leader in India's unpenetrated insurance market. Then why is LIC underperforming? For starters, the company debuted at a time when the market was struggling due to the Russia-Ukraine crisis, interest rate hikes by the US Federal Reserve, and supply chain constraints.
More reasons
Adani-Hindenburg row and new proposed tax affected LIC
Weak market conditions, allegations leveled against Adani Group by Hindenburg Research, and the new proposed tax on higher premium annuity products have added to LIC's free fall. Additionally, the insurance industry's outlook remains glum. Its peers like HDFC Life Insurance and ICICI Prudential have also underperformed or remained flat. Retail investors have also not been impressed by the lack of dividends.
Future
Analysts are still upbeat about LIC
Analysts remain upbeat about LIC. They believe while it may not be appropriate for short-term investors due to sectoral uncertainties, long-term investors can expect favorable returns. Many see a market for insuring the uninsured. The company's shares have been on an upward trajectory over the past week. Out of 15 analysts, 12 recommend buying the stock, while the remaining three suggest holding it.