LIC share price fall: Should you buy, sell, or hold?

The LIC share price has fallen 30%, with overall market sentiment turning negative. Recent selling by anchor investors after the end of the lock-in period has aggravated the share price fall. We discuss whether investors should sell, hold, or buy more LIC shares.

LIC share price is down more than 30

The Life Insurance Corporation (LIC) of India made its debut on the Indian stock exchanges on the 17th of May. However, the listing was disappointing as the share price closed at Rs. 875 against the issue price of Rs. 949. Since the listing day, the share price has continued to slide and is currently trading at Rs. 657 (as of 20th of June 2022).

Image: LIC price chart since listing

LIC Price chart since listing

The above chart shows how the LIC share price has been down by 30% since its listing.

Also Read: Looking To Invest In LIC IPO? Here's What You Need To Know

Why is the LIC share price falling?

Before we discuss what investors should do with their LIC shares, let us understand why the share price is falling. A couple of reasons for the LIC share price fall include:

1) Overall market sentiment is down

Factors such as the Russia-Ukraine war, rising inflation, increase in interest rates, and COVID-19-related lockdowns in China have contributed to the overall market fall. LIC can’t be an exception when the overall market is falling. Hence, LIC shares continue to slide with the market.

2) End of anchor lock-in period - Selling by anchor investors aggravating the share price fall

The 30-day lock-in period for LIC IPO anchor investors ended on the 13th of June. The anchor investors were sitting on losses. So they have been selling LIC shares since the end of the lock-in period. The additional selling by anchor investors aggravated the LIC share price fall.

Also Read: Which Will Be The top 5 Blockbuster IPOs Of 2022?

What are the positive factors in the future?

Some of the factors that are expected to support the LIC share price in the future include:

1) Inclusion in indices

LIC is soon expected to get included in the indices such as Nifty 50, Nifty 100, Nifty 500, etc. All index funds and exchange-traded funds (ETFs) that have these indices as their underlying will invest in LIC shares once they get included in these indices.

2) Increase in dividend

Currently, LIC follows the 95:5 surplus distribution policy. So, shareholders can get a maximum of 5% of the surplus as dividends. In 2023 and 2024, the surplus for shareholders will increase to 7.5%, and in 2025, it will increase further to 10%. A higher dividend distribution can support the share price in the future.

3) Market leader with more than 60% market share

LIC is the market leader in the life insurance industry, with a market share of more than 60%. The Indian insurance market is underpenetrated with less than 5% penetration. LIC has huge scope to grow its business and reward shareholders.

4) LIC valuation is attractive

At the time of IPO, the LIC issue was priced at 1.1 times its embedded value (EV). The other listed companies were trading at 2-4 times the EV. So, even at the time of IPO, the LIC issue was attractively priced. Since listing, the LIC share price has been corrected by 30%. After the 30% share price correction, the valuation has become even more attractive.

Also Read: A Woman's Guide To Investing In IPOs

What should investors do?

If you are already holding shares since the IPO, you may buy more shares at the current market price and bring down your average acquisition price. If you don’t have LIC shares and are considering buying them, you may start purchasing them in a staggered manner. With an attractive valuation, once the market sentiment turns positive, LIC shares are expected to recover and reward shareholders.

Disclaimer: This article is intended for general information purposes only and should not be construed as investment or tax or legal advice. You should separately obtain independent advice when making decisions in these areas.

The Life Insurance Corporation (LIC) of India made its debut on the Indian stock exchanges on the 17th of May. However, the listing was disappointing as the share price closed at Rs. 875 against the issue price of Rs. 949. Since the listing day, the share price has continued to slide and is currently trading at Rs. 657 (as of 20th of June 2022).

Image: LIC price chart since listing

LIC Price chart since listing

The above chart shows how the LIC share price has been down by 30% since its listing.

Also Read: Looking To Invest In LIC IPO? Here's What You Need To Know

Why is the LIC share price falling?

Before we discuss what investors should do with their LIC shares, let us understand why the share price is falling. A couple of reasons for the LIC share price fall include:

1) Overall market sentiment is down

Factors such as the Russia-Ukraine war, rising inflation, increase in interest rates, and COVID-19-related lockdowns in China have contributed to the overall market fall. LIC can’t be an exception when the overall market is falling. Hence, LIC shares continue to slide with the market.

2) End of anchor lock-in period - Selling by anchor investors aggravating the share price fall

The 30-day lock-in period for LIC IPO anchor investors ended on the 13th of June. The anchor investors were sitting on losses. So they have been selling LIC shares since the end of the lock-in period. The additional selling by anchor investors aggravated the LIC share price fall.

Also Read: Which Will Be The top 5 Blockbuster IPOs Of 2022?

What are the positive factors in the future?

Some of the factors that are expected to support the LIC share price in the future include:

1) Inclusion in indices

LIC is soon expected to get included in the indices such as Nifty 50, Nifty 100, Nifty 500, etc. All index funds and exchange-traded funds (ETFs) that have these indices as their underlying will invest in LIC shares once they get included in these indices.

2) Increase in dividend

Currently, LIC follows the 95:5 surplus distribution policy. So, shareholders can get a maximum of 5% of the surplus as dividends. In 2023 and 2024, the surplus for shareholders will increase to 7.5%, and in 2025, it will increase further to 10%. A higher dividend distribution can support the share price in the future.

3) Market leader with more than 60% market share

LIC is the market leader in the life insurance industry, with a market share of more than 60%. The Indian insurance market is underpenetrated with less than 5% penetration. LIC has huge scope to grow its business and reward shareholders.

4) LIC valuation is attractive

At the time of IPO, the LIC issue was priced at 1.1 times its embedded value (EV). The other listed companies were trading at 2-4 times the EV. So, even at the time of IPO, the LIC issue was attractively priced. Since listing, the LIC share price has been corrected by 30%. After the 30% share price correction, the valuation has become even more attractive.

Also Read: A Woman's Guide To Investing In IPOs

What should investors do?

If you are already holding shares since the IPO, you may buy more shares at the current market price and bring down your average acquisition price. If you don’t have LIC shares and are considering buying them, you may start purchasing them in a staggered manner. With an attractive valuation, once the market sentiment turns positive, LIC shares are expected to recover and reward shareholders.

Disclaimer: This article is intended for general information purposes only and should not be construed as investment or tax or legal advice. You should separately obtain independent advice when making decisions in these areas.

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