“Investment opportunities seem to be arising. Cement is one space where one can make a contra and a brave call,” says Kunj Bansal, Founder, Investment-illiteracy.com.
Investors who bought in the IPO were very hopeful but there has been a near 31% erosion in value. This morning there seem to be some positive triggers going forward for LIC. That investors should continue to stay invested is a given but it was supposed to be our Aramco moment and it has not quite played out like that?
Yes, unfortunately that is the truth. The price of any share which is listed – either new listing or existing one – besides its fundamentals is also a function of the market and the sentiments. Clearly the market sentiments have been down from before the listing of LIC. In fact, if we go a few months back, then the issue was supposed to have come in March and then suddenly we had the Russia-Ukraine war and the government did not have any option but to drop or postpone the offer for sale.
Subsequently it came which is good from the point of government as nobody can time the market and it is good that the government understood it well and went ahead at a reduced valuation from what it was considering earlier. Those reduced valuations were far more attractive compared to the other existing listed life and other general insurance companies which were trading at that point of time.
So it is purely a function of the market and that is what has resulted in fact not only for LIC, but for the insurance sector, which on an overall basis, has been an underperformer or a non-participant in last two to two and a half years.
We can also partly attribute it to the fact that Covid impacted their numbers as the claims ratio went up and they had to give a lot of money to policy holders both in terms of debts as well as medical claims. Of course that resulted in the growth coming in alongside but late. We got the monthly numbers of the premiums and we have continuously seen it rise as recently as in May.
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About two months ago despite the market remaining volatile or going down, almost all listed insurance companies moved up around 10% in the last 10 trading sessions. That 10% gain has been eroded and those insurance companies have fallen and the fall of LIC coincided with this recent fall of other insurance companies in the market as well.
That is where we are. The business continues to be what it was. I am sure with the listing and with more transparency coming in, the management will be under continuous pressure to deliver more and more in terms of quality and quantity of earnings. The government would also want its citizens, its shareholders and its supporters not to get the feeling that they have been left high and dry. So, it is only market sentiments that can bring back LIC as market sentiment has been the main reason for the fall.
Are you seeing value emerge anywhere?
It depends on what view one takes of the market and to me, that at the risk of going wrong, has been the case many times in the last 25 years and would continue to be. In the short term, the market is still looking volatile and under pressure. Maybe we could see some technical rebound after the sharp fall, supported by the fact that crude seems to have marginally corrected. We will have to wait and watch going forward, so that is one part.
But yes if one does take a medium term view of the market, these factors are also providing opportunities in the market.
The value word confuses and scares me. So I will leave that aside but I will say more investment opportunities seem to be arising. Cement is one space where one can make a contra and a brave call. The cement shares have fallen led by a corporate action that happened earlier and then the announcement of further capacity expansion in the industry and things like that. But that is clearly a space wherein a lot of investment opportunities have risen because of the sharp fall and the stocks are at a 52-week low. In fact, they are almost one and a half year low.
As a result, the valuations have affected both midcap and largecap stocks and that is where investment opportunities have arisen. Capital goods is another space wherein the cycle has started to recover about six quarters back and there are investment opportunities here.
What is your outlook on ?
There are two ways to look at it, one is the medium and long term outlook in which one probably does not have to apply mind. One always gets a decent return when one continues to hold it for medium to long term, not forgetting the fact that till about 2016 or 2017, there was a nine long year period of consolidation of the stock when long-term investors did not get any return but all of that got covered up in last three-four years or so. So, that is the medium to long term outlook.
Coming to fundamentals, if I leave aside quarter to quarter, the way the group has been building its business model across the new emerging businesses and continuing to generate cash from the old business for investing in the newer businesses, there is no doubt as I said, leaving the quarterly variations aside, on a medium to long term, companies are all set to continue to grow in terms of top line obviously converting into bottom line and converting it into cash flows.
That has resulted in and will continue to result in the medium to long term gains. Coming to the short term trading, we have seen recent volatility in Reliance. Before this correction,
was the only stock which was holding Nifty or Sensex or the large cap or other indices because there was a reasonable 7-8% positive gain which happened till about a week or 10 days ago when other sectors and stocks were going down. From there, it has corrected. So short term, it will continue to be difficult for me to predict or I guess for anybody to predict the moment of the market as well as of this stock but medium to long term, the view remains positive. There is a disclosure that I do hold some shares.
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