LIC slumps 25% from all time high; Find out what analyst make of stock price below IPO rate (2024)

Shares of Life Insurance Corporation of India (LIC) experienced a decline of over 2% on Tuesday, March 19, reaching an intra-day’s low of Rs 882.30. This marks the sixth consecutive session of selling pressure for the company. The stock opened at Rs 905 and witnessed a 2% plunge. Over the last six sessions, LIC’s stock has dropped approximately 12%.

The downward trend in LIC’s stock can be attributed to plans to raise wages by about 17% for its 1.10 lakh employees. This hike is expected to have a significant impact on LIC, with an estimated annual implication exceeding Rs 4,000 crore. Once these increments are put into effect, LIC’s annual wage bill will surge to over Rs 29,000 crore.

Today’s losses push the stock to trade 25% below its all-time high level of Rs 1,175, achieved on February 9, 2024.

LIC, India’s largest insurer, has seen its shares rise by 6% so far in 2024 and nearly 60% over the past year. Moreover, the stock has surged by 76% from its 52-week low of Rs 530.

Notably, the stock surpassed its listing day price of Rs 904 for the first time on January 17, 2024. Additionally, LIC shares soared by 12% in November 2023 and 22% in December 2023 after Chairman Siddhartha Mohanty expressed optimism about achieving double-digit growth in new business premiums in the financial year 2024.

Analysts on LIC

“The short-term correction in LIC stocks is due to Overall market sentiment, A weak stock market especially towards low float PSUs has put a drag on LIC. For the long term, the Indian insurance sector holds promise. Rising disposable income and increasing awareness of financial security could drive insurance product penetration. LIC, with its dominant market position, could benefit from this growth. However, factors like government regulations, competition, and LIC’s ability to adapt to changing market dynamics will influence its long-term performance,” said Sonam Srivastava, Founder and Fund Manager at Wright Research.

Srivastava also added that, Short-term investors with a low-risk tolerance might consider waiting for market stability before entering. Long-term investors with a diversified portfolio and a focus on LIC’s fundamentals and the insurance sector’s potential could view current levels as an opportunity.

Whereas Atul Parakh, CEO of Bigul, digital arm of Bonanza portfolio said that Factors influencing the stock’s trajectory include financial performance, management strategies, competitive landscape, and sector dynamics. Short-term traders could capitalize on swings, while long-term investors should conduct thorough due diligence.

Commenting on the same Mohit Gang, CEO, MoneyFront said that, LIC continues to be the numero uno player in the Life Insurance market in India. Stock was on a tear recently owing to good market conditions and overall positive sentiment around Government owned companies. However, its recent announcement of 17% wage hike for 1.1 Lakh employees could be a big drag on overall numbers.

According to estimates, overall cost will be around Rs. 7000 cr this year and over 4000 Cr annually. This is one of the main reasons for current correction in the stock price below its IPO price of Rs. 904. Along with this, stock also has very little free float because of high government ownership and hence, price moments could be extreme at times.

“In the near term, at least for a quarter or two, stock could continue to see huge pressure. Stock quotes at 14 times earnings multiple and could be a reasonable bet only with a long-term view. Insurance is a hugely under-penetrated market in India and LIC will continue to be at forefront for many more years. Private players are getting strong by the day and they will surely chip away reasonable pie of this market. But in the traditional market, dominance of LIC continues to hold sway,” Gang also added.