LIC stock may be held for long term if there’s no listing gain

Pivot rest of stock portfolio towards strong firms amid volatility

A large number of investors have opened new demat accounts just for the Life Insurance Corporation (LIC) of India’s initial public offer (IPO) which lists on Tuesday. There has also been a massive influx of new investors into the equity market since March 2020.

All these investors are currently experiencing their first sustained market correction.

No listing gain? Hold on for long term

Given the volatile market conditions amid which LIC’S stock is listing, there is a possibility that it may not provide listing gains. New investors who have got an allotment should not feel disappointed if this happens.

Experts believe LIC’S stock is a sound long-term bet.

“LIC is a valuable brand — a national franchise. It still has above 60 per cent share of the rapidly growing life insurance market,” says Abhay Agarwal, founder and fund manager, Piper Serica Advisors, a Securities and Exchange Board of India (Sebi)registered portfolio management services provider.

Moreover, the IPO was reasonably priced. Not only did the government reduce its valuation, it also offered discounts to employees, policyholders, and investors.

“If you hold on to this stock for more than three years, you are likely to earn decent returns,” says Vikas Gupta, founder and chief executive officer, Omniscience Capital.

Now that these new entrants have a demat account, they should invest systematically for the long term.

“If you are not aware of how to do fundamentals-based investing, begin your journey by starting a systematic investment plan in a Nifty exchange-traded fund,” says Gupta.

Exit poor-quality stocks

Investors who have been in the market for the past year or two should revisit their portfolios.

“If you own quality companies, hold on to them without any worries. When the market cycle turns, they will make a comeback,” says Agarwal.

In fact, investors may even use the downturn as an opportunity to buy more of these stocks, and thereby average down their purchase cost. A quality stock, by

definition, must be profitable, and also have a track record of growing its profitability rapidly. Debt on the balance sheet should be minimal. The company should be among the leaders in its market segment and have quality management.

“Valuations of many quality stocks have turned attractive after the recent correction,” says Ankur Kapur, managing partner, Plutus Capital, a Sebi-registered investment advisory firm.

Investors often enter poor-quality stocks during bull runs.

“They create positions in stocks that display high momentum, but possess weak business fundamentals. Exit all such holdings,” says Vaibhav Porwal, co-founder, Dezerv Investments, a wealth technology (tech) firm.

According to Porwal, a lot of narrative-based investing takes place during bull runs. In 2000, the narrative was around companies getting more eyeballs. In 2007, it centred around how government and private-sector investment would drive the profitability of infrastructure companies. In the bull run since 2020, a narrative was built around new-age tech companies.

“Steer clear of all stocks where there is a narrative but no fundamentals,” says Porwal.

Poor quality refers to companies that are loss-making, are unlikely to turn profitable in the near future, are over-leveraged, or require constant infusion of capital.

In these volatile conditions, don’t have positions you will find difficult to hold on to if the market corrects further. If you find that a 75 per cent allocation to equities in your portfolio is giving you sleepless nights, reduce your position to 50 per cent or lower. Re-check your investment horizon.

“Only money that will not be required for five years or more should be in equities,” says Kapur.

Check your personal balance sheet as well. Being neck deep in equated monthly instalments could affect your capacity to handle equity-market volatility. On the other hand, having an emergency fund and adequate health insurance will make you more resilient.

Avoid leveraged trades in the futures and options segment in such an environment.