The LIC is down 4% as the investors’ anchor ends; reduction by 28% of the issue price

The LIC is down 4% as the investors’ anchor ends;  reduction by 28% of the issue price

Shares of Life Insurance Corporation of India (LIC) slipped 4% to Rs 681.70 on the BSE in Monday’s intra-day exchange, as the lock-in period for anchor investors closes Monday, June 13. The state-possessed protection behemoth’s portion cost was down 28% over its issue cost of Rs 949 for each offer. At the hour of the IPO, retail investors were alloted shares at Rs 905 each, while, policyholders got allottment at Rs 889 per share.

At 09:44 am, the stock traded 3 per cent lower at Rs 688.20, as against 2.7 per cent decline in the S&P BSE Sensex.

The stock traded at its lowest level since market debut on May 17, 2022. It slipped for the 10th straight trading day and has declined 19 per cent during the period. With this, LIC has lost Rs 1.2 trillion market capitalisation since listing.

LIC had raised Rs 5,627 crore from anchor investors, with 71 per cent of the amount coming from domestic mutual funds (MFs). Overall, the state-owned insurance giant allotted nearly 59.3 million shares to 123 investors at Rs 949 apiece.

LIC is the only public sector life insurance company in India and primary competitors are private life insurance companies.

Anchor investors are marquee institutional investors who are allotted shares in a company ahead of its initial public offer (IPO). The end of lock-in period will allow anchor investors to sell their existing shares in the market. Anchor investors hold close to 1 per cent of the 3.5 per cent free float of LIC.

Analysts believe that the private sector insurance companies have been growing faster than LIC and gaining market share, with no assurance that LIC will not lose further market share.

Analysts at Emkay Global Financial Services initiated coverage on LIC with a ‘hold’ rating and target price of Rs 875 – up around 12 per cent from current levels.

Highlighting the rationale behind the view, the brokerage says, “The state-owned insurer is underpinned by three factors: Low value of new business (VNB) relative to embedded value (EV), which limits the potential RoEV; lower annual premium equivalent (APE) growth and margin prospects versus private sector peers, as LIC’s higher commission costs and opex limit the scope for product and channel diversification; and inherent volatility in EV as 35 per cent of non-par assets are in equity with no track record of EV movement under the new fund bifurcation structure.” Though analysts remain optimistic of LIC’s market leadership and comfortable valuations, they prefer private sector peers who have a better growth and profitability outlook, thereby, generating higher RoEV.

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