LIC loses over $15 billion of investor wealth — fear of more losses as anchor lock-in ends

• Share price of life insurance giant LIC has rolled down about 29% from its issue price amid a weak market phase.
• Moreover, the lock in period for anchor investors to not sell shares of the company ends today, which could fuel some selling.
• With this, LIC’s position has come down to become the seventh largest company from fifth earlier.

The government owned life insurance behemoth LIC has lost ₹1.2 lakh crore ($15 billion) investor wealth in a month — since it was listed on the stock exchanges.

Its market capitalization is now at ₹4.27 lakh crore – and LIC lost its position as fifth most valued company to settle at number seven.

As the entire market is witnessing selling pressure today, its stock too fell by around 5% and settled at ₹673 — 29% lower than its issue price.

Apart from a steep market fall, today is also important for LIC as the lock-in period of its anchor investors ends today. According to SEBI regulations, the anchor investors must hold the shares for at least one month after the allotment in the IPO — which might result in more selling pressure on the stock in the days to come.

LIC had raised ₹5,627 crore from anchor investors, with 71% of the money coming from domestic mutual funds. Anchor investors are marquee institutional investors who are allotted shares in an IPO before the issue opens.

As the name suggests, they ‘anchor’ the IPO issue by agreeing to subscribe to shares at a fixed price.

Size does matter
The many brokerages which initiated coverage on the behemoth too have expressed their concerns about the short and long term prospects of the company. Its biggest advantage is its dominant position in the market and its size also become its liabilities.

“LIC’s dominant share in the single-premium group fund management business artificially inflates its market share and deflates some of its cost ratios. LIC’s commission and opex ratios are on the higher side vs. cost-efficient larger private players despite its massive scale,” said a report by Emkay in its maiden coverage which recommended ‘hold’ on the stock.

Its extensive network would also mean large branche across the country and the operating costs that it brings. Moreover, its share in the high margin business is low and its future growth depends on how much of that – it can bag. In this context, its size and legacy makes it tough for it to make the switch as compared to other smaller and agile players with nimble strategies.

Adding to it, the share price of LIC which is like a ‘large mutual fund’ with extensive equity investments makes it very sensitive to market movements — which is expected to remain volatile for a long time.


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