• Life insurance giant LIC’s share price is down about 29% from its issue price amid a weak market phase.
  • Additionally, the lock-up period allowing benchmark investors not to sell shares of the company ends today, which could fuel some selling.
  • With this, LIC’s position has descended to become the seventh largest company from fifth earlier.

Government-owned life insurance giant LIC has lost 1.2 lakh crore ($15 billion) of investors’ wealth in a month – since going public.

Its market capitalization is now ₹4.27 lakh crore – and LIC has lost its position as the fifth most valued company to settle at number seven.

With the broader market now under selling pressure, its stock also fell around 5% and settled at ₹673 – 29% below its issue price.

Apart from a sharp market decline, today is also an important day for LIC as the lockdown period for its flagship investors ends today. According to SEBI regulations, primary investors must hold the shares for at least one month after the IPO allotment, which could lead to increased selling pressure on the shares in the days to come.

LIC had raised ₹5,627 crore from lead investors, with 71% of the money coming from domestic mutual funds. Anchor Investors are well-known institutional investors who are allocated shares in an IPO prior to the opening of the issuance.

As the name suggests, they “anchor” the IPO issuance by agreeing to subscribe for shares at a fixed price.

Size matters
The many brokerages that have launched coverage on the giant have also expressed concerns about the company’s short-term and long-term prospects. Its biggest asset is its dominant position in the market and its size also becomes its liability.

“LIC’s dominant share in the single premium group fund management business artificially inflates its market share and deflates some of its cost ratios. LIC’s commission and operating ratios are higher than those of large profitable private players despite its massive scale,” said a report by Emkay in its front cover that recommended “holding” the title.

Its extensive network would also mean a large branch office across the country and the operating costs that entails. Moreover, its share in the high-margin business is small and its future growth depends on how much it can cash out. In this context, its size and heritage make it difficult to change compared to other smaller and nimble players with nimble strategies.

Additionally, LIC’s stock price, which resembles a “large mutual fund” with large equity investments, makes it highly sensitive to market movements, which is expected to remain volatile for a long time.

LIC % change
Today -4.72%
last 5 days -11%
last 1 month -23%

SEE ALSO: Sensex falls over 1,400 points as RIL, HDFC and Infosys drag the market lower
TCS, Infosys, L&T triplets pounce on America’s troubles – wiping out $10 billion on tech wealth
Maruti Suzuki will make the most of economic recovery and also regain lost market share, brokerages say