According to ET, the stock’s remarkable rally came to a stop when the insurer approved a 17% wage increase for its one lakh employees.
The wage revision undoubtedly benefits the 1.10 lakh LIC employees. However, the 29 lakh shareholders will be concerned about the company’s bottom line. The wage hike could result in an annual implication of approximately Rs 4,000 crore, increasing the total wage bill per year to Rs 29,000 crore.
Santosh Meena, Head of Research at Swastika Investmart, was quoted as saying, “It’s important to note that LIC operates on a five-year wage cycle, meaning wage levels are reassessed every five years. In FY2023, LIC made provisions for Rs 2,100 crore for wage hikes, indicating that a significant portion of the expected hike was already factored into its pricing.”
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He further added that some profit booking within the PSU basket also contributed to the correction.
Moreover, LIC shares have surged by 79% over the past year, but experienced a 6% correction in March, bringing the year-to-date gain to 13%.
Sonam Srivastava, Founder at Wright Research, suggests that the outcome of the front running investigation could impact investor confidence and, consequently, the stock price.
LIC, the largest domestic institutional investor in the Indian stock market, made headlines due to its involvement in a front-running case. Sebi confirmed the participation of one of its employees in a case of big client’s transactions. Subsequently, LIC terminated the accused employee.
Stock Outlook
Srivastava stated that if the front-running case is substantiated, it could erode investor trust in LIC’s governance and transparency, possibly resulting in a decrease in stock value. “The severity of the impact (on the stock) will depend on the final wage hike amount and the outcome of the front-running case investigation.”
However, Meena suggests that the case is unlikely to have any significant impact on the share price.
Vishnu Kant Upadhyay, Assistant Vice President at Master Capital Service
Despite short-term uncertainties, industry experts remain optimistic about LIC’s long-term prospects. Vishnu Kant Upadhyay, Assistant Vice President at Master Capital Service, believes that the long-term outlook for the Indian insurance industry is promising. He highlights that heightened awareness of financial security and growing disposable income may drive increased adoption of insurance products, supported by the industry’s strong position in the market.
Upadhyay suggests that the current levels in the market may offer an opportunity for long-term investors with diversified portfolios, particularly those who recognize the potential of the insurance sector and the solid fundamentals of LIC.
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Sonam Srivastava, smallcase Manager and Founder at Wright Research
Sonam Srivastava believes in the promising future of the Indian insurance sector over the long term. The analyst notes that increasing disposable income and growing awareness of financial security could lead to higher penetration of insurance products. Srivastava highlights LIC’s dominant market position, suggesting it could benefit from this growth. However, the analyst emphasizes that factors such as government regulations, competition, and LIC’s ability to adapt to market changes will shape its long-term performance.
In the short term, Srivastava expects potential volatility in the stock, influenced by market conditions and the resolution of the front-running case. Looking ahead, Srivastava emphasizes that LIC’s long-term outlook depends on its capacity to enhance profitability, seize market share, and adapt to evolving industry dynamics. Srivastava advises investors to closely monitor LIC’s performance, industry trends, and broader market movements before making investment decisions.
Santosh Meena, head of research at Swastika Investmart
Meena maintains a bullish outlook on LIC, considering the recent correction as a favorable buying opportunity. He notes strong business momentum and a significant increase in the market value of equity investments recently. As a result, Swastika Investmart has set a 6-month target of Rs 1,200 for LIC.
Global brokerage JPMorgan upgraded LIC to overweight from neutral in March and raised the target price to Rs 1,340 from Rs 690 previously.
Among domestic firms, Kotak Equities raised its target price for the stock from Rs 1,040 to Rs 1,300, while Emkay Global increased its target to Rs 1,200. Religare has upgraded the stock to accumulate from hold with a revised target price of Rs 1,232.
