LIC wipes out $17 billion since its IPO offer

Make no mistake about it. $17 billion is a lot of money, anywhere in the world. In Indian rupees, this translates into a capital loss of Rs130,000 crore.

That is the amount of money that has been wiped out from the market cap of LIC since the IPO. It was, after all, the biggest IPO in India history and also the most prestigious. The government may have sold a much lower stake and at much lower valuations, but investors are staring at huge losses.

The IPO price for the LIC IPO was fixed at Rs949 per share. With the closing price on 13th June at Rs.668.25, the investors in the LIC IPO have seen nearly 29.6% of their investment vanish into thin air.

Retail investors and policyholders may be slightly better off as they got allotments at discounted prices of Rs.904 and Rs.889 respectively.

So, for retail investors the value loss is 26.1% while for the policyholders it is 24.8%. In other words, it is small consolation for those who got the shares of LIC at a deep discount.

LIC has another dubious distinction now. It is the second largest wealth destroyer of 2022 among IPOs. The $17 billion market value depreciation since the IPO ranks only second to LG Energy Solutions IPO of South Korea. Since the IPO, LG Energy Solutions has also corrected by around 30%.

However, the market value depletion in the case of LG Energy Solutions was more than $22 billion. Even in global terms, LIC has seen a big depletion.
 

What exactly spooked the LIC IPO?

There are several reasons why the stock of LIC fell so sharply in the last one month. Here are some of the major driving factors behind the fall.

1. Global macros played a big role. Globally, the rising interest rate scenario resulted in a sharp downgrading of financial stocks, insurance included. That resulted in a lot of small investors and even HNIs not showing a lot of interest in holding on to the stock.

2. There were concerns that the stock was overpriced in the first place. While in terms of market cap to embedded value, LIC did look attractive compared to peers, analysts were of the view that it was among the most valuable insurers in the world, leaving little room for upside in the stock price.

3. The signals were there even during the public issue. Despite the 2.82 times subscription, bulk of the institutional subscriptions came from domestic funds and hardly anything substantial came from FPIs.
That led to a lot of pressure on the stock post listing, especially considering that the stock had listed at a discount to the issue price.

4. Another factor was the latest quarter results for the March 2022 quarter. LIC actually saw its net profits fall in the fourth quarter on a YoY basis, although the top line was higher. That does raise a question on sustained valuations. With the unwinding pressure in the markets, many investors tried to cash out of their positions, even at a loss.

5. There are still a number of practical issues that are unresolved. For instance, the NPAs on the debt portfolio still are quite high at around 8%. The profit numbers are still too low if you compare with the valuations sought by LIC. Also, LIC has been consistently losing market share to private players, despite its formidable agency network.

It is possible that the stock of LIC is more reasonably priced now that the stock is down 30%. However, that is something only time will tell.