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

Published: June 14, 2022
Updated: June 14, 2022
LIC loses over $15 billion of investor wealth- fear of more losses as anchor lock-in ends

LIC investors lose $15 billion

During a bad market period, the share price of life insurance company LIC dropped by around 29 percent from its issue price.

Furthermore, the lock-in period for anchor investors to refrain from selling shares of the corporation expires today, which may spur some selling.

As a result, LIC’s position has dropped from fifth to the seventh-largest corporation.

Since it was launched on the stock markets, the government-owned life insurance behemoth LIC has lost 1.2 lakh crore ($15 billion) in investor capital in a month.

Its market capitalization has now dropped to 4.27 lakh crore, and LIC has dropped from fifth to seventh place.

As the entire market is under selling pressure today, its shares plummeted by roughly 5% and finished at 673, 29 percent below its issue price.

Aside from the dramatic market decline, it is particularly significant for LIC since the lock-in period for its anchor investors expires today. According to SEBI requirements, anchor investors must retain the shares for at least one month following the IPO allotment, which may result in greater selling pressure on the stock in the days ahead.

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LIC has raised 5,627 crores from anchor investors, with domestic mutual funds providing 71% of the capital. Anchor investors are prominent institutional investors who are given shares in an IPO before it goes public.


They’ anchor’ the IPO issue, as the term implies, by committing to subscribe to shares at a fixed price.

Size is important.

Many brokerages that launched coverage on the giant have also raised worries about the company’s immediate and long-term prospects. Its largest advantage is its market dominance, but its scale has also become one of its weaknesses.

“LIC’s dominating position in the single-premium group fund management industry unnecessarily inflates its market share while deflating some of its expense ratios.” “Despite its vast scale, LIC’s commission and opex ratios are on the higher side compared to cost-efficient bigger private companies,” said Emkay in its inaugural coverage, which advised a ‘hold’ on the company.

Its wide network would also imply a significant number of branches around the country, as well as the associated operational costs. Furthermore, its portion of the high-margin market is small, and its future growth is dependent on how much of it it can capture. In this environment, its size and heritage make it more difficult to transition than other smaller and agile firms with flexible tactics.

Furthermore, the LIC share price, which is similar to a “big mutual fund” with substantial stock interests, makes it particularly vulnerable to market swings — which are predicted to stay turbulent for a long time.

“LIC, At the present price, it can be accumulated over at least three years. It will be under pressure for some time longer since anchor investors will be able to escape after June 16. However, given the relatively low value at lower levels, it will pique the curiosity of domestic retail and HNI investors. “Institutional investors would wait a little longer before buying it,” stated Prasant Bhansali, Director – Mehta Equities Ltd.

Anchor investors oversubscribed a day before the LIC IPO, which ran from May 4 to May 9. The government earned Rs. 20,557 crore by diluting its 3.5 percent ownership in the LIC through the country’s largest-ever first share sale.

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