State-run insurance behemoth Life Insurance Corporation of India’s (LIC’s) shares closed at ₹ 581.00 apiece on the National Stock Exchange (NSE), merely 2.65% higher than the stock’s 52-week low of ₹ 265 apiece.
The insurance behemoth made a tepid market debut on the bourses last year and its share price shows a downward trend ever since. The recent correction in its share price is mainly attributed to its exposure to the Adani group’s companies, which have suffered an erosion of market capitalization after the Hindenburg report.
Hindenburg Research alleged that the Gautam Adani-led Indian conglomerate had engaged in stock manipulation and accounting fraud scheme over the last few decades, however, the Adani Group refuted all claims.
Exposure to Adani Group
LIC held 9.14 per cent in Adani Ports; 5.96 per cent in Adani Total Gas; 4.23 per cent in Adani Enterprises; 3.65 per cent in Adani Transmission; and 1.28 per cent in Adani Green Energy, as per data available for the latest quarter.
LIC on January 30 said that it has ₹35,917 crores under equity and debt at the end of December in Adani Group stocks and the total purchase value is ₹ 30,127 crores.
Fall in share price
Even though Adani Group’s stocks account for less than 1% of LIC’s equity portfolio, the markets have battered LIC’s stock. Its shares were trading at ₹ 702.10 levels on January 24, and have lost 17.25% since then, amid dampened investor sentiments.
The first slide in its share price came when Finance Minister Nirmala Sitharaman’s Budget speech proposed to tax income from life insurance policies (except ULIP) having a premium or aggregate premium above ₹5 lakhs in a year.
What are analysts saying?
According to analysts, investors are worried about the impact on the insurer’s business due to its exposure to the Adani group. Moreover, there is a constant overhang of misuse of LIC as a white knight for government disinvestment.
The government currently holds a 96.5% stake in LIC, retail investors hold 2.42%, FIIs hold 0.17% and DIIs hold 0.91%. This means that LIC’s value erosion will hurt the exchequer and retail investors the most.
ICICI Securities in its research report dated February 13, 2023, maintained a buy call on the shares of LIC with a target price of ₹ 917, which translates to an upside of 57.83% as compared to its share price of ₹ 581.00.
Meanwhile, Geojit BNP Paribas, in its research report dated February 22, 2023, has a buy call on the shares with a target price of ₹ 765, which translates to an upside of 31.67%.
The brokerage highlighted that LIC’s exposure to the Adani group as a percentage of its AUM (assets under management was less than 1%. It added that LIC launched new products to support its non-par business strategy and its solvency ratio has improved to 1.85x in the nine months ended December 31, 2022, as compared to 1.77x in the corresponding period last year.
Written by Simran Bafna
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