Shares insurance company: LIC hit its new all-time low in early trading today. Shares weakened to Rs 650 today, although some recovery is seen later on. On Friday, the stock closed at a new low of Rs 655. LIC’s market cap has risen nearly 30 percent since its listing on May 17. However, the brokerage house JP Morgan is optimistic about the stock. By giving an overweight rating of the stock, the brokerage has given a target of Rs 840. The brokerage says there is an uptick in the company’s business and further growth is expected.
Today, LIC’s share has weakened and has reached a price of Rs 650. The IPO price was Rs 949. In that sense, the stock is currently trading at a 32 percent discount compared to the IPO price. At the time of the IPO, the company’s valuation was estimated at 6 lakh crores. While the market cap has now fallen to almost 4.15 lakh crores. That is, so far, LIC’s investors have faced a setback of 1.85 lakh crores. The market capitalization has fallen by more than 30 percent.
That said, even after the current price drop, global brokerage firm JP Morgan is bullish on the insurance giant.
JP Morgan started coverage on LIC with an ‘overweight’ rating and a target price of Rs 840, suggesting a potential upside of 29 percent from the latest lows. However, the target price is about 12 percent lower than the issue price. Markets are misjudging the stock after the sharp decline since listing, the brokerage said. The stock is 32% below its IPO price. Most of the correction in the counter is exaggerated.”
JP Morgan finds the value attractive, even after the Enterprise Value has been adjusted lower for the market declines. They see investor confidence building through consistency and disclosure, which they believe could be the driving force behind LIC. The main risk, according to JP Morgan, is a consequent reduction in interest by the government. LIC has grown recently with JP Morgan forecasting 6 percent growth in FY22-FY24.
LIC had a 44 percent market share in FY22, but has lost market share to competitors in the past five years, JP Morgan points out in its report. LIC’s retail premium is growing faster than the industry and is above 2019 levels. LIC is focused on tackling whitespace in portfolios. It is also making a distribution bump through agencies and other channels, opening up an upside risk, JP Morgan said in its report.
What do analysts say?
VK Vijayakumar, chief investment strategist at Geojit Financial Services, said it has only been a month since LIC was listed, and that it is therefore too early to conclude that LIC has become a wealth destroyer. Even large wealth-creating companies such as RIL, HDFC, Kotak Bank, Infosys and HUL have experienced long periods of underperformance.
“Currently, the financial sector is underperforming, mainly due to the sale of FPIs. This scenario will change as financial sector sentiment lifts. LIC is also likely to outperform as market sentiment improves. Poor Q4 FY 22 results also impacted on the performance of LIC.If the coming results point to improvement, the share can be bought again, driving the share price.The issue price of LIC at 1.1 times the embedded value was reasonable.From that perspective, the current market price is attractive. Long-term investors who have been allocated at the IPO can now buy a little more at the current rate to lower their average costs,” explained Vijayakumar.
Swastika Investmart Ltd. Head of Research, Santosh Meena also says that one can invest in LIC stocks at the current price. Long-term investors need not worry. Insurance is a long-term business, so the benefits of wealth development and wealth accumulation will increase over time. The fundamentals of LIC are strong and the potential for massive growth in the insurance industry in India is very high.
The expert opinions and investment tips in this News18.com report are their own and not the website’s or its management. Users are advised to contact certified experts before making any investment decisions.
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