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Russia’s Fart Of War, LIC IPO Analysis, FANGAM Valuations and More


🔆 The Fart Of War

Last week was all about rumors of Russia going to war with Ukraine. Which didn’t happen. Thankfully so. But it was enough to spook the markets and scare the investors.

As long-term investors, the question to ask ourselves is if we are strong enough to wade these short-term rough times? Some food for thought around this question in the topics we cover today.

  • IPO: Has your distant uncle pitched you the LIC IPO yet? 🤓
  • World Markets: To war or not to war is the question.
  • Valuation: Data-driven analysis of FANGAM stocks
  • Pop Culture: The internet turned “money” into a hobby
  • Behaviour Finance: What does it take to keep holding a winner that’s temporarily losing?
  • Pop Poll: What scares you the most in this market?

LIC IPO – Quick take 🎬

The much-awaited IPO is here. LIC has filed its DRHP and looking to raise ~70,000 Cr from Indian markets. LIC doesn’t need money, but the Government does. They are currently looking to offload 5% of its stake, making it the biggest IPO in India.

LIC is Big!

  • Post listing, it will be the 3rd largest company by Market Cap (~13L Cr) after Reliance (16L Cr) and TCS (14L Cr)
  • It owns 3.9% of Total Indian Equities & 19% of Indian Government bonds
  • LIC AUM stands at 37L Cr – more than 3 times of total AUM of all private life insurers in India
  • It is equal to the size of the entire mutual fund industry in India

What are the growth triggers?

  • The distribution ratio of policy holder’s profits to shareholder profits is currently in the ratio of 95:5. This will gradually increase up to 90:10 in the 3 years. This implies that the profits of LIC should double in the next 3 years.

Russia's Fart Of War, LIC IPO Analysis, FANGAM Valuations and More

  • Unlocking value through divestments
    • LIC owns 49% of IDBI Bank. LIC infused 4700 Cr in IDBI Bank and increased the stake up to 51%.  The bank has total deposits of 2.2L Cr with approx 21% GNPA and 1.7% NNPA.
    • LIC owns 45% of LIC Housing Finance. Here the asset quality is decent at 4% GNPA. Due to RBI guidelines, the company has to stop one of the housing finance companies and asset management companies held by IDBI or LICHF.

What are the risks?

  • Huge promoter stake sale in future. In the next 3 years, the Government has to bring down its stake from 95% to 75%. That is another ~2.6L Cr to 3L Cr of surplus liquidity by the promoters.
  • LIC has a market share of 52% in the Life insurance segment. Followed by HDFC at 9%, SBI at 9%, and ICICI at 6%. LIC has been consistently losing market share for the private players. This trend may continue for some more time.

Should you subscribe?

The retail quota is higher at 35% (unlike the regular 15%) for this massive 70K Cr IPO. The chances are very high for allotment. We suggest you skip the IPO and let the price discovery happen by the market.

If you are looking to invest for the long term, you have an ample amount of time (not quarters, but years) to build a position in this company.

Russia Vs Ukraine feat. Gas Pipeline 🤹

The markets were volatile over the week amid tensions of a war breaking out between Russia & Ukraine. While the conflict has historical reasons involving the annexation of Crimea in 2014 – there’s one more interesting angle. The US is concerned that the power structures in Europe may tip out of its favor and hence seems to be actively promoting this conflict.

Russia's Fart Of War, LIC IPO Analysis, FANGAM Valuations and More

While the real reasons behind such global developments are never known, it’s good to consider all perspectives.

Read – The Crisis in Ukraine Is Not About Ukraine. It’s About Germany

Valuation: How to value disruptions and growth of technology

It has been a rocky year so far, in 2022, with worries about inflation competing with hopes about recovery for the market’s attention. In the midst of all the action, to no one’s surprise, have been six stocks (Facebook, Amazon, Netflix, Google, Apple, and Microsoft or FANGAM) that have largely driven US equities for the last decade, roiling the market with their most recent earnings reports.

Aswath Damodaran writes a data-loaded article analyzing the FANGAM stocks.

Read – Back to Earth or Temporary Setback? Revisiting the FANGAM Stocks

The internet turned “money” into a hobby 🎰

Money is a new hobby. Prime advertisement slots of all gaming events are filled with advertisements of crypto exchanges, fantasy leagues, equity platforms, and the likes. Money has caught the fancy of the youth like never before. Options trading, flipping NFTs, HODLing cryptocurrencies, and BTFDs are the “in things” among the youth in their 20s and 30s.

Read – Crypto’s, NFT’s and Sports betting: Money is a hobby

 No Pain, No Gain 🥋

Data drives the point in this post. The author looks at the best-performing stocks in S&P 500 in the last 30 years and draws out one rare investing insight – the ability to withstand long periods of drawdowns.

All of the top 30 stocks over the past 30 years have had the same gut-wrenching declines at one point or another, proving that large drawdowns are an inevitable part of achieving high returns.

Read – The Ultimate Superpower in Investing

Pop Poll 📝

As an investor in equities, what scares you the most?

  1. Rising Interest Rates
  2. Inflation
  3. Risk of reduced liquidity (i.e. No money printing)
  4. Geo-Political issues like War
  5. Investors moving to other growing asset classes (Crypto, Real Estate, etc)
  6. Subdued Economic Growth
  7. Other


Click here to submit your response (anonymously) 

Last week’s poll results

Most of you would invest in Equities and would prefer technology stocks. Convincingly so.

Russia's Fart Of War, LIC IPO Analysis, FANGAM Valuations and More

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Russia's Fart Of War, LIC IPO Analysis, FANGAM Valuations and More
Russia's Fart Of War, LIC IPO Analysis, FANGAM Valuations and More

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