For years, LIC was speculated to be the most valuable financial institution in India, considering it was the largest in terms of assets under management. The corporation was among the most recognised brands in the financial sector and had more policyholders than the population of Brazil.
However, the moment of truth came exactly a year ago during its IPO when it turned out that, going by its upper band price, the government had valued LIC at around Rs 6 lakh crore, which was lower than many private sector companies. A year after listing, the corporation’s mcap has dipped to Rs 3.6 lakh crore — less than that of private sector companies like Bajaj Finance and Kotak Mahindra Bank, and 13th in terms of the most valuable companies in the country.
“LIC is more sensitive to equity movements as compared to listed peers. A 10% decline in its equity portfolio will lead to a 6.5% fall in embedded value (and a 2.7% fall in the value of the new business) as compared to a dip of 1.5-2% (0.2-0.6%) for major listed peers,” said BoB Caps in a research report. Embedded value measures the intrinsic worth of a life insurance company, taking into account future revenues and liabilities. The value of new business refers to the profits that the corporation can expect to earn in future from the policies it sells during the year.
Analysts say that one of the reasons for the low valuation is that the embedded value of the corporation is directly linked to the market value of its investment. The corporation has a significant part of its investment in government bonds. The corporation’s stock also took a beating during the rout in Adani Group stocks after the Hindenburg report, despite LIC insisting that Adani investments were only 0.98% of assets under management.
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