Investor Nightmare: LIC's Mega IPO Flops, Losing Trillions! Will It Ever Recover?

LIC, India's largest IPO, disappoints as its market capitalisation erodes by Rs 24 lakh crore. Explore the reasons behind its underperformance and its prospects for recovery.

LIC IPO

The IPO of Life Insurance Corporation (LIC), one of the most eagerly anticipated events in the Indian market, took place in May 2022, making the company among India's top ten most valuable entities by market capitalisation. With a staggering IPO size of Rs 20,557 crore, it secured its position as the largest IPO in Indian history. However, as the LIC commemorates its one-year milestone on Dalal Street on May 17, 2023, the performance since its listing has left much to be desired.

Looking Back at LIC IPO

According to a report by Business Today, LIC's market capitalisation has eroded by Rs 24 lakh crore since its listing. Reflecting on the LIC IPO, it is evident that the outcome has been disappointing. During the IPO, the Indian government sold 3.5% of its stake in LIC, amounting to 22,13,74,920 equity shares, at a price of Rs 949 per share. Retail investors were provided a discount of Rs 45 per share, resulting in an effective price of Rs 904 per share for them. Unfortunately, the stock has experienced a significant decline of nearly 40% from the issue price over the past year, currently trading at around Rs 567 per share. This not only represents a 40% loss but also erases a staggering market value of approximately Rs 2.38 lakh. The stock was initially listed at a 9% discount, opening at Rs 867, but proceeded to decline thereafter.

Here are the reasons why -

  1. Challenging market conditions: The past year was unfavourable for insurers, with the LIC experiencing a deterioration in its month-on-month numbers. Although the LIC still dominates the life insurance business in India, all insurers faced difficulties in the market. The aggressive pricing in the IPO further increased their challenges.
  2. Subscription numbers below expectations: Despite being India's largest IPO to date, the subscription fell short of expectations. It reached about 3 times the expected subscription of 5–6 times. Additionally, a significant portion of the subscriptions came from mutual fund investors who followed the crowd. The digital IPO implosion influenced the underwhelming subscription and below-par listing, which impacted LIC's stock.
  3. Impact of the Adani Hindenburg case: The Adani Group association with LIC created additional scrutiny and negative sentiment due to the Adani Hindenburg case, where allegations of stock manipulation and accounting fraud were made. LIC's substantial exposure to the Adani Group, estimated at around Rs 56,000 crore, didn't resonate well with the market.
  4. Performance compared to private sector peers: LIC's performance lags behind private sector insurance companies. Last year, LIC's stock price dropped by 40%, while HDFC Life Insurance remained stable, ICICI Prudential Life Insurance declined by 13%, and Max Financial Services saw an 8% decrease. In contrast, SBI Life Insurance experienced a 10% increase. 
  5. Absence of significant dividends: LIC was perceived as a major dividend play for investors, similar to other state-run companies. However, the company has only announced a single dividend of Rs 1.50 per equity share in August 2022, which was relatively insignificant.

Despite challenges, the LIC has reasons to be optimistic. Its market dominance and brand recognition give it an advantage, especially in life insurance. Modernisation efforts and improved digital capabilities will help it stay competitive. The launch of new products, like a customer mobile app, is also promising. Some experts believe that the shares may touch issue price by Diwali 2023.

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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