More Downside In Store For LIC Stock?

The dismal market debut shows the country’s largest life insurer is yet to prove its mettle before investors.

- V. KESHAVDEV

It was meant to be the jewel in the government’s crown but the public market debut of the country’s biggest life insurer, the Life Insurance Corporation of India (LIC), proved to be anything but that. In fact, at the press conference to announce the launch of LIC’s initial public offering, Tuhin Kanta Pandey, secretary, Department of Investment and Public Asset Management, had a tough time fending queries on why the government was selling LIC so cheap.

The IPO was valued at 1.1x LIC’s embedded value of ₹5,40,000 crore compared to listed peers’ 2x to 4x. Pandey told journalists at the interaction that comparing LIC in terms of embedded value to other players may not be the correct approach given the difference in sizes. While the media felt the government was selling its prized jewel cheap, in hindsight it seems the government and the bankers knew the worth of what they were selling.

The government got the valuation that it wanted but it has left investors with losses, for now. The Centre sold over 22.13 crore shares (3.5% stake) at ₹949 a share, but the insurer listed at a discount of 9% to the issue price on May 17 and slipped further 13% over the subsequent sessions to end at ₹840.20 on May 19. Not just retail investors but policyholders and employees’ investments, too, have turned negative despite being offered a discount. The insurer had offered a discount of ₹60 to policyholders and ₹45 to retail investors and employees, translating into an issue price of ₹889 and ₹904, respectively.

While bankers and the government would argue that the listing came amid global rout across markets, there were already enough indications that the debut was a risky proposition.