The LIC conundrum: 2.65 lakh retail investors left the company in the second quarter

The LIC conundrum: 2.65 lakh retail investors left the company in the second quarter

Despite the stock’s poor performance, experts anticipate a 25–40% recovery.

Retail investors appeared to have differing opinions on the future of the shares of the Life Insurance Corporation(LIC) of India, as one group altogether stopped buying shares while another continued to do so.

In the largest insurance company in the nation, retail investors are using a cost-averaging or buy-on-dips strategy because the share price has been declining every month. LIC shares are currently trading close to their lowest point since listing at 595 versus the issue price of 904 (for regular investors) and 889 (for institutional investors) (for policyholders).

The July-September quarter saw a departure of more than 2.65 lakh retail investors from LIC, according to the most recent ownership patterns. But the total number of shares held by 35.23 lakh small-time investors has climbed to 12.21 billion from 11.86 billion shares (q-o-q). This increases the number of shares by 35 lakh, or by 0.05 percent, to 1.93 percent (1.88 percent). 39.86 lakh investors received 10.51 crore shares, or a 1.66 percent stake, in the IPO. So, after the IPO, current retail investors have purchased more than 1.7 crore additional shares. This suggests that some retail investors engaged in cost-averaging because they anticipated a reversal in the value of LIC scrip.

Purchase mode

A slight increase in their position from 0.12 percent to 0.18 percent was also evidence of confidence in LIC from foreign portfolio investors. However, mutual funds decreased their holding to 0.64 percent (0.74 percent). Despite the stock’s poor performance, experts anticipate a 25–40% recovery.

Citi anticipates $1,000 target for foreign exchange

The most optimistic of them all, Citi, just started covering LIC with a buy rate and a $1,000 target. According to Citi, LIC continues to dominate the underserved life insurance market in India despite market share reduction. Fund splitting, which resulted in a higher equity mix in non-participating funds, has also raised questions.

“However, our Deep Dive recommends comfortable ALM in guaranteed return products supported by sovereign long-term debt instruments. According to Citi, the excellent core operating ROEV, good medium-term market potential, negligible high-risk assets (real estate, foreign securities), and lack of legacy liabilities with high guaranteed returns would all underpin LIC’s premium over Asian competitors of comparable vintage.

Motilal Oswal maintains a buy rating on Emkay Global with a target of 830, while Emkay Global is currently rated as a hold.

Over 2 lakh retail investors leave LIC, yet holdings slightly rise.

Within 45 days of its IPO, more than two lakh small investors pulled their money out of Life Insurance Corporation of India (LIC), as the stock’s decline persisted. Even while the proportion of retail investors climbed from 1.66 percent to 1.88 percent, their share of the market decreased in absolute terms.

Initially priced at 904 (for retail investors) and 889 (for institutional investors) (for policyholders), the stock fell to 650 on June 20, a decline from the IPO price of 904 (for retail investors) and 889 (for institutional investors). Currently, the stock is trading at 696.

37.65 lakh individual investors possess 11.86 crore shares, or 1.88 percent, of the insurance giant, according to the most recent shareholding pattern (June quarter) available with the stock exchanges. On the other side, 39.86 lakh investors bought shares in the IPO, totaling 10.51 crore, or 1.66 percent of the total shares.

NRIs (non-resident Indians) appear to be placing their bets on LIC as over 4,000 new NRIs joined LIC during the quarter. As many as 21,268 NRIs currently own 0.03 percent of the company.

FPI and DII stake reduction

Foreign portfolio investors (FPIs), as well as local institutions have decreased their stakes in the company. FPI holdings decreased from 0.22 percent to 0.12 percent, although MF holdings decreased to 0.74 percent (0.80 percent). However, there are now 100 MF plans holding LIC, up from 19 previously. On the other hand, the number of FPIs owning LIC shares dropped from 59 to 47.

Additionally, the quantity of QIBs, the IPO’s anchor investors, then doubled to 35 (18), albeit their ownership declined somewhat to 0.19 percent (0.20 percent).

Integrated value

Based on March 2022 results, the largest insurer revealed an embedded value (EV) of 5,41,492 crore, up from 5,39,686 crore previously. A total of Rs. 7,619 crores was reported for the Value of New Business (VNB) for FY22, up 83% over the previous year. This increase was made possible by an increase in the VNB margin to 15.1% for FY22 from 9.9%. In a recent analysis, Emkay Global Research stated: “Given the haziness around the EV growth trajectory, the increased inherent volatility of EV due to the significant equity in non-par assets, and a projected below-average RoEV, we retain our neutral opinion on the company.”

Our target price of $800 is determined by valuing LIC at 0.8x Sep-23E P/EV. Despite LIC’s dominant market position and reasonable valuations, the research continued, “we favor private sector counterparts with superior growth and profitability prospects and greater RoEV potential.

Edited by Prakriti Arora