LIC Lists At 8% Discount. What To Do?

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LIC lists at discount

The much-awaited LIC IPO listed on the exchanges today. Life Insurance Corporation of India (LIC) is India's biggest IPO through which the government offloaded 3.5% of its stake in the insurance behemoth to raise Rs 21,000 crore from the share sale. The public issue was booked 2.95 times over the 16.20 crore shares on offer.  

On listing, LIC had a market capitalization of Rs 5.5 lakh crore, placing it among the top five listed companies in the country by market capitalization. 

How was the listing?

The LIC's listing was expected to make a weak listing for many reasons. The listing was in line with the expectation. LIC stock opened at an 8% discount at Rs 872 against the issue price of Rs 949. It recovered a bit post-opening but slid to close the day at Rs 873.00.

Below are some reasons for subdued listings:

  • Large IPO size: The majority of big IPOs have not given strong listing debut gains, including recently listed Paytm. Considering previous trends, LIC has continued to take the same path with listing at a discount.
  • Overall equity market sentiment: The subdued listing of LIC is also in context to the drop in market dynamics from the opening of the IPO to the listing date. The market was at higher levels when the IPO opened for subscription. Accordingly, LIC had a decent GMP. The listing price has fallen in tandem with the fall of the overall market and insurance sector valuations, maintaining a discount of about 70% to the industry’s average.

What should investors do?

If you hold LIC stocks, you should plan to hold them for the mid to long term to make gains. LIC is a decent investment opportunity considering its strong market presence, improvement in future profitability due to the changes in surplus distribution norms, and strong sector growth outlook. It may perform well when the market bounces back, and the insurance sector performs positively overall. 

LIC is a blue-chip company that is expected to give steady returns to investors over a long time, and therefore investors should not get too worried about one-day fall or returns.

Brokerage Radar: Macquarie on LIC

The foreign brokerage firm said that LIC's market share (in recent years) has fallen due to a lack of a diversified product portfolio, adding that the life insurance company has an excessive focus on single premium and group business. It added in its report that Volatility in b worries the firm as a large part is constituted by equity MTM (mark to market) gains. 

The brokerage has given a NEUTRAL rating with a target price of Rs 1,000, which is a modest 5.37% upside over the issue price of Rs 949.