India’s Largest IPO is Finally Ready for a Breakout!

  • Stock Market Analysis

The largest IPO of India to date, Life Insurance Corporation Of India (NS: LIFI ) has been a huge disappointment for investors. Since the listing on 17 May 2022, the share price of LIC has been making new lows, not giving a single chance to investors to make an exit in profit. In fact, most of the buyers who kept on buying the dip also got stuck with their red portfolio.

Midway during the fall, the stock seemed to be taking some support around INR 800, however, once broken on 6 June 2022, the stock crashed in a jiffy all the way to a low of INR 650, which is also an all-time low for the stock. After eroding approximately 29.26% value from the lifetime high (which was marked on the listing day itself), the stock entered a tight range.

Image Description: Daily chart of LIC shares showing a consolidation phase

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After a significant fall, a stock entering a consolidation phase is common and generally indicates an accumulation phase. This is exactly what happened in the Paytm (NS: PAYT ) shares when the stock kept falling since listing and entered a long consolidation phase before finally reversing to the upside. Although this accumulation phase was much smaller than Paytm, the patterns are very similar. 

In this phase, astute investors generally try to get in as valuations get reasonable amid a prior plunge. This is why the selling pressure starts to abate and most of the supply starts to meet sufficient demand. Once the demand starts to outstrip the supply, the share price starts to move on the upside and gradually comes out of the consolidation phase.

As can be seen from the chart, after a range, LIC shares are now making an attempt to make their way out of this range. Today, shares of LIC surged 2.37% to INR 708.6, by 10:33 AM IST and it is trading very close to the upper bound of the range (resistance), which is INR 709.7, rounding it off to INR 710. Once LIC share price stages a successful breakout above INR 710, especially on a closing basis, the reversal from the prior downtrend could be deemed to have ended.  

After the resistance of INR 710, the next hurdle is present around INR 800, which was the earlier support. Hence, there could be a one-way rally till the next hurdle after a breakout from the current range. However, a more conservative estimate of how far the rally could stretch can be gauged by taking the height of the range and adding it to the breakout level, which in this case is coming around INR 770. Height (710-650) + Breakout level (710).

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  • Bhavik Shah @Bhavik Shah
    do u have Twitter handle?
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  • Bhavik Shah @Bhavik Shah
    do u have Twitter handle?
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  • Rajesh Kothari @Rajesh Kothari
    This is Called ***Effect.
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