InvestorQ : What were the factors driving the sharp fall in the price of LIC and do you see scope for bottom fishing in the stock?
swati Bakhda made post

What were the factors driving the sharp fall in the price of LIC and do you see scope for bottom fishing in the stock?

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Moii Chavate answered.
8 months ago
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There were several reason for LIC underperforming Nifty.

a) First and foremost, the global macros had a role to play. A hawkish interest rate scenario resulted in sharp downgrading of financial stocks. Also, retail investors did not show too much appetite in holding to the stock.

b) Investors always felt the LIC stock was overpriced. While brokers were aggressive in pushing the issue, it was already clear that the valuation comfort in LIC only came after the profits were restated. Otherwise, the private insurers were more attractive.

c) Foreign investor interest, a key driving factor for the price performance, was absent during the anchor issue and also during the IPO. Even in institutional subscriptions, bulk of the applications came from domestic funds. That led to pressure on the stock post listing.

d) The anchor period just ended and normally we have seen in the past that most institutional anchor investors rush to the exits when the 1 month lock in period ends. That was evident in the case of LIC also.

e) Finally, let us not forget that the data was quite tepid in terms of quarterly numbers with the profits falling in the fourth quarter. That did raise a question on sustaining lofty valuations.

f) Open issues in LIC business model remain. NPAs on debt portfolio are high at 8%. The profit numbers are still too low if you compare with the valuations sought by LIC. May 2022 numbers also show LIC losing market share to private players.

The only question is whether the stock is attractive at current levels. But it is still risky.

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