It has been one year since India’s largest insurer, the Life Insurance Corporation of India got listed on the bourses on May 17, 2022. Once labelled as a game-changer for the Indian equity market, the insurance behemoth turned out to be a wealth destructor for investors. LIC has an extensive reach throughout the length and breadth of the country, and its listing was believed to be a milestone event that had the potential to attract many investors. 

Though LIC is one of the top 10 companies in terms of market valuation, it has not been able to make it to the Sensex or Nifty as the free float of the stock is minuscule. The government continues to hold a 96.5% stake in the company even after its listing, while retail investors, mutual funds and foreign institutional investors hold the remaining 3.5%. 

The government offloaded 22,13,74,920 equity shares, or a 3.5 per cent stake in the company at an issue price of ₹ 949.00. The scrip debuted at a discount of 9% on the Bombay Stock Exchange (BSE) at ₹ 867.20 apiece and got listed at a discount of 8% on the National Stock Exchange (NSE) at ₹ 872.00. It witnessed heavy drubbing in the past year and has fallen by 40% from its issue price, eroding more than 2.5 lakh crore in market capitalization. 

Here are a few reasons why LIC’s share price cascaded: 

Low Subscription 

Market analysts say that investors tend to lose interest in any issue that opens at a discount and remains below par for a while, leading to selling pressure. LIC was India’s biggest IPO so far, however, it was oversubscribed merely three times, indicating a muted response. 

Selling by FIIs and DIIs 

FIIs had a 0.12% stake and DIIS had a 0.86% stake in the company as of the June quarter of 2022. However, these institutions withdrew their money during the year. According to the latest data, FIIs hold a 0.08% stake and DIIs hold a 0.83% stake, indicating a decline. Meanwhile, retail investors’ stake increased from 2.52% in June 2022 to 2.59% in March 2023. This means that retail investors are averaging their stocks, while the big money is leaving the counter. 

Earnings 

LIC’s earnings haven’t given any positive surprises to investors when it comes to its earnings. In order to woo investors, it will have to give healthy and consistent growth in terms of revenue and operating profits. 

Bailout Machine 

Many investors consider LIC as a bailout or rescue machine by the government, leading to apprehension among investors. Soon after the Hindenburg group’s allegations against the Adani group, LIC’s share price turned southward, due to its exposure.

Absence of substantial dividends 

LIC was considered to be a major source of dividend for investors, just like many other state-run companies like Coal India. However, the insurer has announced a dividend of merely ₹ 1.50 per equity share in August 2022, making the dividend payout insignificant for investors. 

Peer Performance and market headwinds 

LIC is the market leader in the under-penetrated life insurance market in India. However, it came under multiple headwinds like weak market conditions and changes in the taxation policy. While LIC has lost almost 40% this year, its competitors like SBI Life Insurance Company gained 8.13% and HDFC Life Insurance Company Ltd gained 1.45%. 

LIC is the largest life insurance provider in India with a market share of more than 66%, It offers participating insurance products and non-participating products like unit-linked insurance products, saving insurance products, term insurance products, health insurance, and annuity & pension products. 

With a market capitalization of ₹ 3,58,944 crores, the state-owned insurer is a large-cap blue-chip company. It has a high return on equity of 45.27%. The company’s shares were trading at a price-to-earnings ratio (P/E) of 14.23 which is higher than the industry P/E of 13.10, indicating that the stock might be overvalued as compared to its competitors. 

Written by Simran Bafna 

Disclaimer

The views and investment tips expressed by investment experts/broking houses/rating agencies on tradebrains.in are their own, and not that of the website or its management. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution while investing or trading in stocks. Dailyraven Technologies or the author are not liable for any losses caused as a result of the decision based on this article. Please consult your investment advisor before investing.

The post Here are 6 Reasons why LIC stock price has dropped 40% since its listing last year appeared first on Trade Brains.