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LIC share price forecast: Will LIC rebound from fresh record low?

By Mensholong Lepcha

Edited by Jekaterina Drozdovica


Updated

Representative candlestick chart with a double exposure of a graph to illustrate finance
Life Insurance Corporation stock forecast: Will the insurance giant rise? – Photo: ADOKAVAK / Shutterstock.com

Life Insurance Corporation of India (LIC) slipped to a fresh record low of INR617 at the end of September 2022, which marked a torrid few months as a publicly-listed company for India’s largest ever initial public offering.

The government-owned insurer has disappointed investors, having lost as much as 29% from a listing price of INR872 since its debut in May 2022.

Nevertheless, LIC remains one of the most dominant life insurance companies globally, with a market share of 64.1% in India in terms of gross written premium (GWP) as reported in 2021.

In this article, we take a look at Life Insurance Corporation of India, its price action and financial performance. You will also find a LIC share price forecast for 2022 and beyond from analysts.LIC STOCK PRICE FORECAST AFTER IPO

About LIC: Market leader in life insurance sector

LIC was formed in 1956 by merging 245 private insurance companies as the government moved to nationalise the life insurance industry in India. Between 1956 and 2000, LIC was the only life insurance provider in India, which helped the first-to-market player establish its dominant position.

The company distributes its products via agents, bancassurance partners, alternate channels comprising corporate agents, brokers and insurance marketing companies, digital channels, micro-insurance agents and point of sales persons. LIC has the biggest network of individual agents in India with a strength of about 1.3 million.

As at 31 December 2021, the company’s offices covered 91% of all districts in India. LIC also has branches in Fiji, Mauritius and the United Kingdom, with subsidiaries in Bahrain, Bangladesh, Nepal, Singapore and Sri Lanka.

LIC is the largest asset manager in India, with assets under management (AUM) worth INR36.8trn in fiscal year 2021. According to Motilal Oswal, the state-owned company’s AUM, as of March 2021, was equal to 19% of India’s gross domestic product (GDP) for 2021. 

The company is also the largest domestic institutional investor in the Indian financial sector. LIC’s listed equity investments amounted to 4% of total market capitalisation on the National Stock Exchange, as of the end of 2021.

LIC was a 100% state-owned entity until its IPO in May 2022, when the Ministry of Finance of India sold a 3.5% stake as a part of its divestment strategy. The Indian government was entitled to the IPO proceeds. LIC did not receive any proceeds from its listing.

Sector analysis: ‘Under-penetrated’ life insurance sector

Favourable government policies have helped LIC cement itself as the dominant and undisputed leader of the Indian insurance sector.

LIC held a market share of 62% in terms of new premiums in the first nine months of fiscal year ended 31 March 2022, compared with 9% held by its closest rival SBI Life.

“Nowhere in the top seven markets globally is the difference in market share between the largest and the second largest life insurer as stark as in India,” said HDFC Securities in a note.

However, private players equipped with strong banking partnerships have consistently chipped away market share from the leader over the years.

According to Jefferies, LIC’s new premium market share has declined from 69% to 61% since 2015, while its retail annualised premium equivalent (APE) market share has sunk from 51% to 38% in the same period.

APE is the sum of annualised first year individual and group premiums on regular premium policies, plus 10% of single premiums of individual and group business, according to LIC. 

According to Motilal Oswal, India’s “under-penetrated” life insurance industry offers huge potential. The brokerage firm said India’s life insurance penetration stood at 3.2% in 2020, compared with 7.6% in Singapore, 6.4% in South Korea and 3.4% in Thailand. 

Meanwhile, Nirvi Ashar and Rohit Khatri, research analysts at Religare, said in a note :

“The under-penetration of life Insurance in India, coupled with favourable demographic tailwinds, would drive multi-decadal growth in the life insurance industry, registering a CAGR of 14-16% over FY21-32.”

Company analysis: How does LIC work?

LIC is heavily dependent on its agents, which account for 96% of the company’s new business premiums (NBP) in the individual product category, according to Motilal Oswal. 

The brokerage company added that an LIC agent’s average NBP generation was over three times the average median NBP generated by an agent of the other top five players in India.

As for the company’s product portfolio, participating products, which require insurers to distribute their products to policyholders in the form of bonuses or dividends, accounted for 60.9% of its GWP (gross written premium) in 2021, according to LIC’s IPO prospectus.

The weighting of participating products in the portfolios of rivals was comparatively lower at a median of 35.2% for the top five private insurers in India.

LIC has made changes to its profit-distribution policy in anticipation of its public listing. Currently, profits in the company’s participating funds are allocated between policyholders and shareholders in the ratio of 95:5. The ratio will be amended to 92.5:7.5 from 2023 and 90:10 from 2025 onwards.

“Increasing the shareholders’ share of the surplus in our corporation’s participating fund may reduce the attractiveness of our participating products, which could have an adverse effect on our business, financial condition, results of operations and cash flows,” LIC said in May 2022.

LIC’s products are also dominated by non-linked products, which accounted for 99.7% of its total premiums in 2021. Smaller rivals have wooed customers away from LIC with attractive unit-linked insurance plans (ULIP), which invest part of the premium in equities and bonds with the aim of generating higher returns.  

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“LIC’s product portfolio is more immunised to capital market cycles compared to peers non-linked products,” said HDFC Securities in a note.

Fundamental analysis: Latest quarterly earnings

LIC said new business premium income for the quarter ended 30 June 2022 rose over 36% to INR109.4bn compared to a year ago.

The company said total premium income for the June quarter climbed 20% year-on-year (YOY) to INR983.5bn as number of policies sold increased 59% from a year ago.

LIC reported AUM of about INR41trn in its quarterly report, an increase of 7.5% from a year ago. 

The government-owned insurer said its overall market share by first year premium income increased to 65.42% for the quarter ended 30 June 2022.

Price analysis: LIC stock price performance

LIC debuted on the stock market on 17 May 2022 at INR872, much lower than its IPO offer price band of INR949 to INR902. The stock traded at an all-time high of INR918.95 on its listing day.

Souring investor sentiment amid the global monetary tightening cycle led to the LIC stock price deteriorating, with the insurance giant closing its first month on the stock market 7% lower at INR811.

Losses extended into June for LIC as the US Federal Reserve adopted a hawkish stance and hiked rates by 75 basis points, its biggest rate increase in nearly 30 years.

The stock saw five consecutive weeks of losses after its market debut and closed the month of June at INR673.9, more than 22% lower than its listing price.

The LIC stock price saw some respite in the first week of July by gaining nearly 5% as it posted its best week in its short history as a publicly-listed company. Since then, the company was unable to hold its upward momentum due to souring risk appetite in global equiy markets.

The current bear market has particularly hit asset managers like LIC, many of whom have seen the value of their investments drop since the start of a global rate hike cycle led by the US Federal Reserve.

LIC stock posted a monthly loss of 7.7% in September 2022 as risk aversion among investors continued. On 29 September, LIC slipped to a fresh record low of INR617.

Outlook: LIC share price forecast for 2022 and beyond

Let’s read what analyst are saying about the company’s future and LIC share price predictions.

“LIC has all the levers in place to maintain its industry-leading position and ramp up growth in highly profitable product segments,” said brokerage firm Motilal Oswal in a research note.

Motilal Oswal added that LIC is expected to deliver about 10% compound annual growth rate in new business premium over fiscal year 2022 to fiscal year 2024.

“LIC’s valuation at 0.7x FY24E EV appears reasonable considering the gradual margin recovery and diversification in the business mix,” said Motilal Oswal.

According to its LIC share price forecast, the brokerage set a target price of INR830 and maintained a buy rating on the stock.

Elsewhere, Emkay Global Financial Services recommended a hold rating on the LIC stock and set a target price of INR800 in its LIC stock forecast.

“Although we appreciate LIC’s market-leading position and comfortable valuations, we prefer private sector peers that have better growth, profitability and therefore higher RoEV prospects,” said Emkay Global Financial Services in a research note.

In late-September, Shivaji Thapliyal, head of research and lead analyst at Yes Securities initated coverage on LIC with a buy rating, as seen on Zee Business.  Thapliyal set a target price of INR850 per share.

Meanwhile, artificial intelligence-based LIC stock forecast from WalletInvestor held a bearish view and expected the stock to close at INR512 by the end of 2022. WalletInvestor did not give LIC share price forecast for 2025.

Note that any analyst and algorithm-based Life Insurance Corporation stock forecast can be wrong. Forecasts shouldn’t be used as a substitute for your own research.

Always conduct your own due diligence and remember that your decision to trade or invest should depend on your risk tolerance, expertise in the market, portfolio size and investment goals. Never invest more than you can afford to lose.

FAQs

Is LIC shares a good buy?

Life Insurance Corporation has lost more than 20% from a listing price of INR872, as of 4 October 2022. It is a market leader in the life insurance sector in India.

Always conduct your own due diligence and remember that your decision to trade or invest should depend on your risk tolerance, expertise in the market, portfolio size and investment goals.

Will LIC shares go up?

Motilal Oswal set a target price of INR830 and maintained a buy rating on LIC stock.

Note that any analyst and algorithm-based Life Insurance Corporation stock forecast can be wrong. Forecasts shouldn’t be used as a substitute for your own research.

Should I invest in LIC shares?

Life Insurance Corporation has lost more than 20% from a listing price of INR872, as of 4 October 2022. It is a market leader in the life insurance sector in India.

Always conduct your own due diligence and remember that your decision to trade or invest should depend on your risk tolerance, expertise in the market, portfolio size and investment goals.

 

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