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LIC shares: Where is the bottom? What is the correct price?

Analysts must see how much it can create value for shareholders after it meets its mission of delivering to its policyholders.

From over Rs 6 trillion on the final IPO price of Rs 949 per share, the market capitalisation of Life Insurance Corporation of India plunged to Rs 4.5 trillion by the time it broke the ground down to an all-time high at the market closing on 10th June. Since the day it was listed, the stock has seen a one-way fall. Market pundits began to recommend the equity a week ago when it fell to Rs 830, maybe with the hope that its equity had sealed the bottom. But buyers were not easily tamable. After a nine-day unremitting fall, its price fell further to Rs 708 when the market closed on 10th June for the week. Perhaps, no analyst might have foreseen such a fall, thanks to their miscalculation. 

It is still a long-heard song about LIC’s great legacies. Though everyone knows the stories, serious investors have taken them with a pinch of salt. They are not ready to buy the legendary story of LIC, but what it makes for investors and what it has already made. LIC did not pay a dividend to the government in the last two years.

The rod is still hot. The stock is yet to see its bottom. A good story is always good for investors who enter the stock at the right price. It may be around Rs 600 or even far less to make it a good bet for investors who always prefer the wait-and-watch policy.  At the current price of around Rs 710, the price earning (PE) ratio over its book value (BV) is more than 14 times. The stock of State Bank of India, a public sector banking behemoth with an impressive dividend-paying history commands a PE ratio of fewer than three times over its book value. Many of the stocks traded on the bourses are quoting less than their book value. The best example is LIC Housing Finance, the subsidiary of LIC of India.  

Again, LIC has a great legacy to boast about. No doubt, it has a significant position in many asset classes. Most of those assets are not the wealth of equity shareholders but the portfolio assets of its policyholders. Analysts must find out where LIC of India has parked its earlier year’s surplus and how much they have appreciated.

Every fall is an opportunity for investors to take a position in the stocks, which were ruling at high prices. Though the highly forbidden price at which the lead managers could help it sell made losses to investors, a fall is an opportunity for them to add to the number of LIC shares in their portfolio at the right price. Wait and be prudent. 

Udaykumar KV

Udaykumar KV

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