Holding LIC Shares: Understand the experts opinion!

Hundreds of investors who purchased LIC shares during the IPO may regret their decision as the share price continues declining.

LIC shares since listing

Investors in the financial market are always looking for a good investment opportunity. When the government declared it’d be issuing LIC shares through an IPO, many investors jumped at the opportunity. Almost six months after the issue, these investors may be reanalyzing their decision to invest in the IPO. Let us understand the background of LIC shares, its downfall and the expert’s advice on what to do next.

LIC Shares: Background

LIC, also known as the Life Insurance Corporation of India, is a government-owned insurance company providing protection plans and investment opportunities to the general public for decades. LIC is one of the most trusted companies which provides different insurance plans to its customers. 

Also read: LIC Share price goes down!

In April 2022, the Government of India declared that they would sell LIC shares through an IPO on May 4, 2022. The reason behind this sale was the government's strategic vision, which would make LIC a more valuable and successful company in the years to come. The government of India sold 3.5 percent of LIC shares (221.3 million) through the IPO. Twenty-two million shares out of the total were reserved for the individual’s holding policies from LIC, and 1.5 million shares were reserved for the employees. The share price for the IPO was decided to be Rs 949 per share. 

Also readFactors affecting the Indian Share market.

LIC Shares: The Downfall

The problem faced by the investors who purchased LIC shares is that the price of the shares continues to fall. The share's current price is Rs 619, which is 35 percent less than the price at which the IPO was issued. The downfall of LIC shares can be attributed to the following reasons:

  1. The volatility of the insurance business - The insurance business is highly volatile and can be affected by the equity market. This has impacted the embedded value of the shares, causing the share price to go down. 
  2. Investor Sentiments - Due to the rise in inflation, many investors have become concerned about the economy's growth. This concern has let many investors sell their holdings or lose interest in domestic companies.
  3. Weak Quarterly results - The insurance company recently released its quarterly profit, which was a decline of 17 percent as compared to the previous quarter. This led to the price of the shares declining further.
  4. Selling by Anchor investors - As the price of the shares started to go down, anchor investors holding many shares started to sell. This confused the investors, and they started to sell because of panic. 

Also, Watch: Why is LIC share price falling?

LIC Shares: Expert Advice

Experts believe that the timing of the IPO has been the root cause of the downfall of the share price. With the Russia-Ukraine war, rising inflation, and global unrest, LIC shares have been unable to survive in the market. As the price has declined by almost 35 percent, it is unlikely that the company will gain investor confidence.

The founder and director of Proficient Equities, Mr Manoj Dalmia quoted that the price of drop of LIC to Rs 647 has resulted in loss of support. He clearly stated that the investors should not buy the share and wait till the price increases to sell it at Rs 606.

The head of Research at Share India stated that he expects the price to fall down further to Rs 550 and the investors must wait till the share prices increase before making any decisions.

One might argue that the investment can be a good return long-term, but the price of shares for other companies is rising in the market while LIC is declining. The best way to get out of this turmoil is to wait for a good position and sell. Even though the government backs LIC, it would be impossible for the shares to reach the listed price again. Therefore, the investors should cut losses and sell the shares to avoid further losses.

Final words

The fall in the share price of LIC was unexpected for the majority of the investors. As the global economy continues to feel the impact of inflation, the price of the shares is expected to keep going down. The investors must try and sell their shares from a good position to avoid further losses.

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


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