Life Insurance Corporation Of India (NS:) is one of those IPOs that have not given a single chance to investors to exit in the green. Forget about the initial allotments, as those rates never came after the stock got listed but even all dip buyers are also in deep pain. Even a few sessions ago, the stock was seemingly forming a double bottom formation which is a reversal sign, but below NR 650 even that got negated and it continued its perpetual fall. No matter where investors bought the stock, most probably would be below sitting on a loss and such a horrible performance was definitely expected by investors.
The overvaluation of the stock in the book-building process at the time of IPO in the name of the largest player in the industry is one of the reasons for a consistent decline in the stock price. Even after falling 28% from the listing price of INR 872, the stock is still trading at a P/E ratio of 96.4, while other insurance companies such as SBI Life Insurance Company (NS:) and HDFC Life Insurance Company (NS:) are trading at a P/E ratio of 82.55 and 84.36, respectively. As the stock is trading at an all-time low, there is virtually no support present beneath the current price. However, on the daily chart, LIC shares have formed a descending triangle pattern which could hint at how far the stock could still fall from here.
Image Description: Daily chart of LIC showing a triangle breakdown
Image Source: Investing.com
As can be seen from the chart above, the break below the level of INR 650 was a major breakdown from the triangle pattern. Since then, the stock has been falling continuously without any signs of slowing momentum. This is a volatility contraction chart pattern and a breakdown below the support leads to a downtrend. The estimated target to which the stock could fall is around the height of the triangle subtracted from the breakdown level. In the case of LIC, it won’t be surprising if we see a rate of INR 580 – INR 575 in the near term, especially if the broader market continues to tumble. That’s a further downside potential of around 6.5% from the CMP of INR 621.45.
The stock has already become oversold as depicted by the RSI (14, daily) which is showing a reading of 25.9, well below the benchmark level of 30. This shows that there could be a bounce back being witnessed anytime. The first signs of a reversal could be a bullish candlestick pattern such as a piercing, bullish harami, hammer etc., or a reversal chart pattern such as a double/triple bottom, base formation, rounding bottom etc. Investors should also track some kind of divergence to gauge a slowing momentum.