There is a strong case to go long on LIC say analysts and macroeconomic indicators

• The listing of the most awaited issue was disappointing though widely expected. Its stock fell over 8% today.
• However, analysts believe investors need not feel dejected and end up selling in losses as the long term view for life insurance products remains strong.
• India’s highly underpenetrated life insurance space is still at a nascent stage and LIC is attractively positioned to capture the huge growth opportunity, say analysts.

Almost one in every two retail investors who applied for the initial public offering of Life Insurance Corporation of India (LIC) has been allotted the shares. This is because 13.77 crore retail investors bid for 6.91 crore shares reserved for this category of investors.

However, the listing of the most awaited issue was disappointing though widely expected. Its stock fell over 8% today on listing to ₹867.20 while the price band was fixed at ₹902 - ₹949 per share.

Hold LIC for the long term, recommend analysts
But there is no case to feel dejected and go on a selling spree, believe analysts. They recommend them to hold them for the long term as demand for life insurance products remains strong.

A report by CareEdge expects the life insurance industry to grow at around 12-14% for the next three to five years.

“Insurance demand is positively correlated with economic growth and grows at a multiple to the GDP. FY23 has started on a strong note, and LIC’s growth momentum over the past few months comes ahead of its initial public offering…Overall, the outlook is expected to be positive in the medium term,” said the report.

Moreover, stock analysts also believe at the current market prices, LIC’s share price is significantly cheaper compared to listed players. This is despite the fact that LIC is a dominant player with 60% market share in premiums.

“At current price, LIC is trading at a price-to-earnings P/EV (embedded value) of close to 1.08 times, which is at a significant discount to other listed private life insurance companies like HDFC Life, ICICI Pru Life, and SBI Life,” said Yash Gupta, equity research analyst at Angel One.

“As expected given the adverse market conditions listing has been muted for LIC. However, cheap valuations as compared to other listed players offer comfort, and investors with a longer time horizon can hold on to their positions while retail traders with a short-term view can exit their positions in case there is any upside movement over the next few days,” he added.

$LIC.P plunged early in its debut after a record initial pubic offering that priced at the top of the range and was oversubscribed nearly 3 times. Stock is hovering at Rs 904 amid 2.5cr shares traded on NSE. $LIC.P shares started trading at Rs 865 a piece, 8.65% over its issue price of Rs 949 on BSE. The share opened at Rs 872 on NSE, 8.8% discount over the premium. Reason? The sell off in the global and domestic market, the hike in interest rates by the central banks and the accelerating inflating statistics, and an ongoing gobal war have dampened the euphoria around the listing of mega IPO. $LIC.P IPO comes amid intense competition in the industry an has a market share of more than 66 %. LIC IPO valuation is attractive considering its strong market presence, improvement in profitability due to changes in surplus distribution norms and strong sector growth outlook. So, LIC can perform well provided we have bounce in the market.

— (@DhwaniTA) May 17, 2022

Listing gains of IPO stocks maybe a thing of the past
LIC is not the only company with a bad listing to its name. LIC is not the only company with a bad listing to its name. On the top of this list is PayTm which lost 60% of its value since it listed in November 2021.

“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. 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.

Analysts believe India’s highly underpenetrated life insurance space is still at a nascent stage and LIC is attractively positioned to capture the huge growth opportunity. LIC’s brand value, large scale of operations and a wide distribution network will drive its stock performance.

“The company’s issue was priced at a price to embedded value of 1.1 times, providing a valuation comfort, so we suggest investors to stay with the company for the long term despite the negative listing,” said Parth Nyati, Founder, Tradingo.
Some analysts even hope that the life insurance giant may give dividends to disappointed investors.

“LIC didn’t pay any dividends in the last financial year, so there are high chances that the company might declare a good dividend this year, thus making it a good dividend play,” said Santosh Meena, Head of Research at Swastika Investmart.


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