Life Insurance Corporation (LIC) shares surged over 7% to hit a fresh 52-week high of Rs 820 on Friday after the government granted the state-owned insurance behemoth a one-time exemption from meeting the minimum public shareholding (MPS) norms for 10 years.
LIC Gets Breathing Space Till 2032 For 25% Public Float
On Thursday, LIC informed stock exchanges that the central government has granted a one-time exemption to the insurer regarding compliance with the minimum public shareholding norms.
As per terms of the exemption, LIC now has time until May 17, 2032 to comply with the requirement of a minimum public float of 25% instead of an earlier deadline of May 17, 2023.
This exemption comes as a shot in the arm for LIC which was facing difficulties in quickly divesting its stake to private investors and reducing government control below 75%. The latest extension offers much-needed breathing space to LIC.
LIC Stock Surges Over 7% To New High
Cheered by the exemption news, LIC shares saw huge buying interest on Friday. The scrip opened higher and continued to see strong momentum through the day.
LIC stock eventually closed 7.26% higher at Rs 820 apiece on the BSE. This marks a new 52-week high level for the insurance major.
The market capitalization of LIC swelled to nearly Rs 5.12 lakh crore, highlighting investors’ renewed enthusiasm.
14% Gains In 2023, 26% Rise In 6 Months
LIC shares have been on an upward trajectory in recent times after a disappointing debut in May 2022.
So far in 2023, LIC stock has appreciated by 14%. Over the past six months, the shares have rallied 26%.
Friday’s surge reflects investors’ positive sentiment after concerns over LIC meeting the MPS requirements in quick time have been addressed for now.
LIC Meeting Public Float Norms Was Challenging
LIC’s public issue last year drew tremendous response from investors after initial reservations. The insurance giant raised around Rs 21,000 crore by diluting 3.5% stake.
This brought LIC’s public float to 5%, lower than the 25% MPS norms. To comply with SEBI’s minimum public shareholding rules, LIC needed to offload 20% more equity by May 2023.
However, volatile market conditions made it difficult for LIC to rapidly sell shares and reduce government control below 75%.
Hence, the one-time exemption provides much-needed breathing room to LIC management.
Analysts Positive About LIC’s Prospects
Market analysts welcomed the exemption for LIC and remained upbeat about the insurer’s medium-term potential.
Osho Krishan, Senior Research Analyst at Angel One said, “LIC has seen a significant rally in the recent period. It gained substantial traction in today’s trade on the back of news related to the exemption to achieve a public shareholding of 25%.”
Krishan expects the positive momentum in LIC stock to continue going ahead. He sees strong support around the Rs 760-750 zone for the shares.
DRS Finvest founder Ravi Singh also struck a bullish tone on LIC. He sees scope for LIC stock to rise further to Rs 850 levels in the coming days.
However, some analysts also advise exercising caution amid the sharp upmove. AR Ramachandran believes LIC may be overbought in the short term.
Near-Term Triggers For LIC Stock
The positive sentiment generated after the MPS exemption can have spill-over effects lifting LIC stock further. Some analysts expect the shares to move towards Rs 850-900 levels.
LIC reported a 19% YoY decline in Q2 net premiums earlier which was below market estimates. However, new policy sales increased 12% YoY offering optimism.
With clouds over divestment pressures cleared for now, investors can focus on LIC’s underlying business performance. If the insurance giant continues expanding coverage and registers growth in premiums written, its stock could attract higher valuations.
The government also remains committed to eventual privatization. Earlier this week it raised over Rs 23,000 crore by selling stakes in 10 PSUs to institutional investors. This sets the stage for future growth opportunities in LIC as well.
In summary, LIC’s prospects appear brighter after the MPS relief. The insurer has time till 2032 to meet public shareholding norms. This positive policy support coupled with fundamental triggers can sustain the rally in LIC’s stock.