LIC shares cross retail IPO price of ₹904 for the first time; What should investors do?

Shares of Life Insurance Corporation of India Ltd. (LIC) crossed its listing day price of ₹904 for the first time on Wednesday, January 17, making an intraday high of ₹918.45. The stock had crossed its listing price of ₹867 and the price of ₹889, which is the price at which policyholders were allotted shares on Tuesday.

India's largest insurer has seen shares rise 11% over the past month and over 43% during the past six months. The stock has also risen 70% from its 52-week low of ₹530.

LIC shares surged 12% in November and 22% in December last year after Chairman Siddhartha Mohanty told news agency PTI that he is optimistic about achieving double-digit growth in new business premiums in the financial year 2024.

New business premium (NBP) is the premium, which is due on policy in the first year of a life insurance contract or a single lump sum payment from the policyholder.

LIC has now become India's most valuable PSU, overtaking the State Bank of India. LIC's current market capitalisation stands at ₹5.75 lakh crore, compared to SBI's ₹5.64 lakh crore.

One must note though, that LIC operates on a very low float in the market as the government still holds a 96% stake in the company. The government had divested only a 3.5% stake at the time of its IPO in May 2022, which is to date, the country's largest public issue.

Since listing, the stock has not re-tested either its retail IPO price of ₹904 or the original IPO price of ₹949. Retail shareholders and LIC policyholders were given a discount of ₹45 per share and ₹60 per share, respectively. Policyholders were given shares at ₹889 per share.

“LIC is going to be among the top eight most profitable companies in India in the next 2 years and it’s a business that is worth keeping for a longer time and it will get revalue as more information starts to be available," Deepak Shenoy of CapitalMind told CNBC-TV18 on December 18.

Brokerage firm Kotak Institutional Equities had written in a note in December that the hype around LIC can be attributed to the hype around its non-par product Jeevan Utsav.

Back then, the brokerage had called the valuation of LIC "inexpensive," thereby providing big headroom. Therefore, it retained its "buy" recommendation on the stock with a price target of ₹1,040.

"LIC started its journey on a very weak note with about 40% correction since its listing. However, over the past few months, it managed to change its downtrend after the formation of higher highs and higher lows. It witnessed a swing breakout above ₹750 levels which propelled the stock towards ₹900 levels. The next hurdle is placed at 920 which once crossed and sustained can push the stock towards ₹1,100 levels," Gaurav Bissa of InCred Equities said.

Shares of LIC are trading 1.8% higher at ₹908.30.