LIC share rises on rating boost; JP Morgan sees 29% upside

Shares of Life Insurance Corporation (LIC) of India rose over 1% on Tuesday, after hitting a fresh 52-week low in the previous session, as investors cheered global brokerage firm JP Morgan’s outlook on the insurance behemoth. The LIC share price recovered after the agency initiated coverage on the stock with an “overweight” rating and a price target of ₹840 a share, indicating a potential upside of 29% from its new 52-week low of ₹650 on Monday.

The stock has witnessed dismal performance since its listing on May 17, with stock price trading 31% below its initial public offering (IPO) price of ₹949. The stock has eroded investors’ wealth by ₹1.8 lakh crore as market capitalisation dropped to ₹4.2 lakh crore as compared to the valuation of around ₹6 lakh crore during the market debut.

On Tuesday, LIC shares opened marginally higher at ₹666, against the previous closing price of ₹661.25 on the BSE. During the session so far, the insurance stock rose 1.5% to hit an intraday high of ₹671.35 as 0.7 lakh shares worth ₹4.66 crore changed hands over the counter.

JP Morgan upgrades outlook of LIC

JP Morgan India, one of the ten book-running lead managers for the IPO of LIC, on Monday said that the market has been harsh to the country's largest life insurer. “LIC’s new business value is only 1 percent of its policies in force. Therefore, with 99 percent of value from old policies, we see the 0.75 times P/EV (price-to-embedded value) as unduly harsh, even assuming no growth,” the investment banks’ research wing said in a report.

Expressing optimism over future growth, the report noted that LIC has gained momentum recently and expects the trend to continue at 6% on an annualised basis over the current and next two financial years. “The improved ability of agents post re-opening should drive growth. In the last four months, LIC’s retail premium is growing faster than industry (+32% y/y) and is above 2019 level,” it said.

“In our view, LIC would need to show consistency in EV which would signal accuracy on assumptions used,” it said, adding that investors are only willing to pay 0.75 times the stock's estimated price-to-embedded value.

The revised outlook came at a time when there is a fear in the market that the stock may see further correction as anchor investors might sell their shares in the insurance major as the lock-in period on all its allotted shares ends today. The state-owned insurer had garnered around ₹5,627 crore from anchor investors ahead of its mega IPO, with more than 70% coming from domestic mutual funds. As per the offer document, LIC had allotted nearly 59.3 million shares to 123 investors at ₹949 apiece.

The state-owned insurer had raised ₹20,557 crore in the country’s biggest-ever IPO last month after the government offloaded a 3.5% stake in the company at an offer price of ₹902 to ₹949 per share. The IPO had received a tremendous response from investors, with the issue oversubscribing 2.95 times. The policyholder portion of the IPO has been subscribed 6.11 times, while the portion reserved for employees was subscribed 4.39 times. Retail investors bid 1.99 times the allocated bucket, and non-institutional investors’ portion was subscribed 2.91 times. The issue raised a ₹43,933 crore demand against the intended offer size of ₹21,000 crore.