LIC -- Will it fall more??

LIC is India’s largest insurance company & enjoys 63.8% of the country’s total insurance share.

?? This year, the LIC stock has been volatile throughout starting from INR 709.50 on Jan 2 to INR 597.75 as on Jun 6.

LIC shares haven't been too long in the market & at times behave in a very unexpected way.?There have been signs of slight recovery every now & then but the stock price hasn’t stabilized for a long time & it reached its all-time low(ATL) of INR 530 on March 29, 2023. Since then the stock has seen some recovery but not substantially.?

?? Let's understand the reasons why the LIC stock still has the potential to recover...

LIC is an example of how market murmurs(rumours & conversations) impact the share price of a company.

?? Profits

Life Insurance Corporation of India recorded a standalone net profit of INR 13,427.8 crore for the quarter ended March FY23, growing 466% over the corresponding period in the last fiscal & LIC has delivered record profits in 2023 & 2022, had issued its first-ever dividend which is an indicator of a robust company.

Myth: There seemed an insecurity amongst investors that the company is not profitable & private players have been biting into LIC’s business.

So, basically lack of investor confidence seems to be playing a part in bringing down the share price.

?? The Hindenburg Report

In Jan 2023, Hindenburg Research published a report alleging the Adani Group of manipulating the market & indulging in accounting fraud. While investment in the Adani Group was not alone by LIC but several other companies, it has been a matter of focus for investors & market participants who are keen to know how will it bode for LIC as it holds a total exposure of 4.23% in multiple Adani Group companies.

So, basically the research report brought in negative sentiments all-around which indeed affected LIC's share price.

?? The Business Outlook

LIC has lost some business as previously, it had 67.73% share of the insurance sector as of Nov 2022 but it still has a 63.8% share of the insurance sector.

Well but this has not impacted the profitability of the company, rather the impact of the decline in business got absorbed in the total increase in the overall company business since the FY2021-22, in which LIC’s life insurance premiums showed a growth of 10.2%.?

LIC’s premium income rose at the rate of 14.5% to INR 1,11,000 cr in the last quarter of 2022. For the March FY23 quarter, the standalone net premium income increased by 17.9% on a sequential basis.

?? The Government Factor

The political Opposition parties to the current govt have launched scathing attacks over the mis-management of LIC , after the Hindenburg report came out given the fact that LIC is the only govt sector/public sector company dealing with life insurance.?

The govt indeed defends the functioning of LIC in a transparent manner under the supervision of IRDAI that keeps a very close eye on all insurers in the country.

As the GoI is the majority stakeholder in LIC, it has the necessary support of the govt.

?? Experts believe the govt would not let a INR 3.52 trillion company, which is an asset for them, fail & LIC will continue to be of great importance to the govt.

?? Expansion by LIC

Another market conversation that has time & again created uncertainty over LIC is that the company has not expanded/isn't willing to expand & has reached its saturation point . This is not completely accurate as LIC has operations not just in India but in various other countries like Singapore, Bahrain, Bangladesh etc.

One might say other insurers are perhaps expanding very fast but the effect is reflected in their balance sheets. LIC does have constraints of capital but any growth has & is to be supported by internal accruals only.

Lastly,

?? LIC’s Portfolio

An important claim of bad investment by LIC (read Adani group)?plays a very important role in devaluing its stocks.

Well but the point to be noted is all the above-mentioned companies of the questioned group recovered from the aftermath & are performing better-than-expected on the Indian stock market.

?? Basically, the important aspect to understand for a lay investor here is that these are not the only companies LIC has invested in, rather LIC has invested in 273 other listed stocks ranging from pharmaceuticals to banking & LIC has among the best diverse portfolio of companies.?

Given LIC’s robust fundamentals, it would be wise to assume the stock is on strong footing & that the company is here to stay for long term. Whether the stock is for you/ not is a decision you must take based on your financial goals & the diversification you’d like to see in your portfolio.

???? What you can do :

Check with your financial advisor

Conduct an in-depth study (if using the D-I-Y approach) into the company’s background & future prospects.

• Use Screener for company fundamentals
• Understand the S.W.O.T.S
• Identify/Understand your risk-appetite & time horizon

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