What makes LIC shares good dividend, long-term play? Experts decode

LIC IPO review: Shares of Life Insurance Corporation were listed at a discount of nearly 9% on the bourses, NSE and BSE, on Tuesday, May 17, 2022. Against the issue price of Rs 949 per share, the stock was listed at Rs 867.20 per share on the BSE and Rs 872 apiece on the NSE on Tuesday.  

Meanwhile, despite muted debut, brokerages and analysts remain bullish on shares of India's largest insurer in the long-run. They believe strong brand name and India's highly underpenetrated life insurance space will give edge to the counter in the long term.  

LIC enjoys many competitive advantages like strong brand value, extremely large scale of operations, a huge network of agents, and an envious distribution network, says Parth Nyati, Founder, Tradingo. Further, the company’s issue was priced at a price to embedded value of 1.1x, providing valuation comfort, he said.  

"We suggest investors stay with the company for the long term despite the negative listing," said Nyati.  

He suggested that those who applied for listing gains can maintain a stop loss of Rs. 800. "New investors can take advantage of the dips to accumulate this share for the long term. We would like to add that the company's further downside will be limited due to low float post listing," added the expert.  

Santosh Meena, Head of Research, Swastika Investmart Ltd, is of the view that LIC IPO can be a good dividend play.  

"LIC didn’t pay any dividends in the last financial year, so there are high chances that the company might declare a good dividend this year, thus making it a good dividend play," said Meena 

Speaking of tepid debut on the exchanges, he said that the current market is not conducive for primary issues and LIC being the largest IPO has witnessed a negative listing.  

"The current market volatility has weighed down on the insurance titan’s listing. However, the prospects for the insurance industry in India are good due to the under penetration of insurance and a long runway of growth. Hence, LIC being the largest player will be the beneficiary in the long term," he said, adding that Insurance is a business of scale, and there is no company to match the scale of LIC.  

As per Vinod Nair, Head of Research at Geojit Financial Services, the subdued listing of LIC is in-line with expectations in context of the drop in market dynamics from the opening of the IPO to the listing date.  

The listing price has fallen in tandem with the fall of insurance sector valuations, maintaining the discount of about 70% to the industry’s average, he said.  

We believe that LIC is a decent investment opportunity in the short to medium-term considering its strong market presence, improvement in future profitability due to the changes in surplus distribution norms and strong sector growth outlook, said Nair 

"LIC can perform well when we have a bounce in the market and positive performance in the insurance sector," he added.  

LIC shares were trading with nearly 8% discount to the issue price and almost 1 per cent lower on the listing price at Rs 875.00 per share around 3.15 pm on Tuesday.  

Shivam Bajaj, Founder & CEO at Avener Capital, said despite reduction in the pre-IPO valuation of LIC, the scrip still listed at a discount on the bourses which is in tandem with the diminution in insurance companies’ valuation and softness in the markets due to macro-economic constraints. "However, given the attractive fundamentals, stability in operating metrics and expected recovery in the markets, we can potentially see some buying interest from investors,'' he said.