On a global scale, LIC’s initial public offering ranked third. However, today ranks second among Asia’s newly listed IPOs in market capitalization loss this year. Why Is LIC Share Price Falling?
LIC (Life Insurance Corporation of India), the largest insurer in the world, had a highly successful initial public offering (IPO). Major investors anticipated that the company and all those who purchased shares at the IPO would achieve future success. However, the LIC Share Price post listing had a rocky beginning.
LIC’s IPO was the biggest in history. The initial public offering ranked third worldwide and had the highest response from retail investors of any IPO in history.
During the IPO, the government sold 3.5% of its shares in the giant insurance company. In contrast to the typical three-day subscription period, the 21,000 crores public offering got almost three times as many subscriptions in six days. Despite this, LIC’s stock price has declined since its IPO. Why? Let’s analyze.
After the “Life Insurance of India Act” was approved by the Indian Parliament in June 1956. In July 1956, the LIC Act came into force. The act aided the nationalization of India’s private insurance business.
In September 1956, the Life Insurance Corporation of India (LIC) became incorporated as a business. It is one of India’s largest financial institutions.
More than 245 insurance businesses and provident societies merged to establish the Life Insurance Corporation of India, which the Indian government controls.
Its total assets exceed 2,529,390 billion rupees. The Corporate is Mumbai-based and a government-run insurance and investment firm (LIC). LIC’s current organizational structure consists of a corporate headquarters, 113 divisional offices, 8 zonal offices, 2048 fully computerized branch offices, and 1381 satellite offices.
Its metropolitan area network connects all branches, while its vast area network consists of 113 divisional offices. LIC has partnered with a few banks and other service providers to offer an online premium collecting service in a few locations.
The IPO subscribers were significantly affected by this reciprocal impact to submit bids for the LIC IPO at the upcoming IPO in India.
How did the stock perform?
Despite failing to start the IPO by March 31, 2022, as required by the fiscal year 2021–2022, the government was nevertheless able to bring LIC public in May 2022.
Despite this, the IPO of the insurance industry giant was a significant letdown for investors. It not only made its public debut on May 17, 2022, at a discount of around 8%, but it also reached its record low before the IPO listing period’s month-long deadline.
LIC shares had a more than 18% price decline on June 6, 2022, from their IPO issue price of $949.00 to $776.50 on the NSE and $776.40 on the BSE. For the first time, LIC stock reached its all-time low.
Even now, LIC shares are trading at Rs 682, down around 5% from where they were a month ago. The stock’s price as of August 11 is $28% below the $949 mark, which served as the upper range of the IPO price range.
Why the fall in LIC share price?
The drop in the price of LIC shares results from three critical factors. According to the best broker for trading, turbulence in the stock market is the primary cause.
Analysts claim that changes in the stock market may have a significant impact on the insurance industry’s underlying value. As a consequence, the stock price has decreased. Additionally, investors’ anxiety about economic growth and worries about inflation negatively impacted LIC.
LIC’s $2.7 billion IPO failed due to global central banks raising interest rates to combat inflationary forces. Consequently, there was reduced demand for equities, leading to a 10% decline in the essential Indian indexes for this year.
Even the LIC’s anchor investors reduced their holdings despite buying around 59.3 million shares daily. Institutional investors that purchase shares just before an IPO opens for subscription are known as anchor investors. Retail investors have more faith in the share demand due to the growing presence of anchor investors.
Due to weaker share sales demand brought on by rising interest rates and global inflation, as well as unprecedented foreign selling pressure on India’s stock market, LIC’s $2.7 billion IPO has turned out to be one of Asia’s most significant new stock failures of the year, nearly a month after its debut.
The much-anticipated LIC IPO in India has been given the moniker “Aramco moment” in reference to the Saudi Arabian Oil Company’s record-breaking $29.4 billion sale in 2019. The Oil company’s deal was the largest in the history of the globe.
It was a part of the plans made by Prime Minister Narendra Modi to expand the country’s capital markets. LIC IPO aimed at reducing the government’s budget deficit, which increased due to the epidemic.
Should you buy or hold?
Today’s early trading saw shares of Life Insurance Corporation (LIC) of India rise by more than 3 percent after the insurer announced a considerable rise in standalone net profit for the three months ending June 30, 2022. Given the remarkable performance in the first quarter,
The Final Word
Motilal Oswal claimed in an analysis of its profits: “We enhance our estimate of the value of a new business (VNB) by 24% /18% and revise our FY23/FY24 VNB margin to 14.2%/14.66% by 200bps/100bps. To attain a 14% CAGR in VNB, we predict LIC to achieve a 13% CAGR in APE from FY22 to FY24.
Due to its weaker margin profile compared to private competitors, we expect operational RoEV to remain modest at 12.4%. Our advice to Purchase remains unchanged.”
Proficient Equities’ founder and director, Manoj Dalmia, stated: “LIC’s net profit jumped more than fivefold to Rs 682.9 crore compared to the previous quarter.
LIC reported a 20% rise in annual net premium growth (YoY). The stock price has begun to fluctuate. The next several days might bring about reach a target of Rs 782. Investors with a long-term outlook may gather more stocks.”
Rohit Khatri, Assistant Vice President of Research at Religare Broking, stated: “With net premium revenue up 20% year-over-year and new business premiums up 35%, LIC’s financial performance for the quarter was solid. Increasing market share was also a significant advantage for the firm.
We remain bullish on LIC due to its leadership position and focus on developing its underperforming business, which would help the company become highly profitable.”