Shares of insurance behemoth Life Insurance Corporation (LIC) saw significant gains yesterday after the government announced a regulatory tweak removing a long-standing overhang on the stock.
LIC rallied over 5% to close at Rs. 803.50 apiece on the National Stock Exchange, marking a new 52-week high. The surge comes after the Insurance Regulatory and Development Authority of India (IRDAI) granted the state-owned insurer a one-time exemption extending its deadline to achieve mandatory minimum public shareholding (MPS) norms.
As per the exemption, LIC now has ten years to reach the 25% MPS threshold mandated by capital markets regulator SEBI, as opposed to the earlier May 2027 deadline. With the government holding a massive 96.5% stake in the corporation, achieving MPS levels would have required regular stake dilution through shares sold in the market.
By pushing out this timeline, the new rule provides a breather from any potential destabilizing effects of such dilution activities. Market experts believe this was a big overhang on LIC shares which has now been lifted.
“The exemption removes a long-standing question mark for investors regarding when and how much the government may look to sell its holdings,” said Ajay Bodke, CEO at Prabhudas Lilladher.
LIC’s stock listing in May 2022 was the country’s largest ever IPO, but shares have since dropped over 15% from the issue price of Rs. 949. While volatile markets hampered performance, the constant threat of mandatory and unpredictable share sales also weighed on the price.
Speaking to the Business Standard, senior analyst Anindya Das said, “The relaxation gives LIC a clean slate to just focus on the business for now instead of being distracted by ownership metrics. It provides more stability and transparency.”
There have also been early growing pains adjusting to the stresses of public disclosure requirements and quarterly reporting cycles. In its maiden Q2 FY24 results, LIC saw net profit halve due to falling premium incomes as investment markets declined alongside higher agent commission costs.
Questions remained whether operating such a vast corporation transitioning to a new regulatory structure could maneuver volatility. However, most experts agree lifting the MPS overhang is a positive first step allowing fundamentals to steer the ship.
LIC management has stated bolstering profitability through product and segment level growth remains a priority. Large ticket strategic initiatives include optimizing older legacy infrastructure and systems while expanding digital initiatives and customer service quality benchmarks.
Analysts will closely track metrics like new business premiums, solvency ratios, and expense management over the coming quarters for signs the insurer is adjusting to the listed firm landscape. With its unparalleled Indian footprint and billions in assets under management, unlocking greater shareholder value relies on steady progress here.
Whether LIC shares can stage a sustainable rebound above IPO levels in the long run remains to be seen. But for now, exempting the company from an unnecessary near-term overhang has opened the door for investors to assess its transition journey with greater clarity. Removing regulatory compulsions is a positive first step welcomed by markets.
