Indian stock market: Shares of Life Insurance Corporation (LIC) of India have been on an uptrend in the last four months. In this period, the LIC share price has risen from around ₹600 to ₹1,066 apiece level, registering around 75 percent rally in this time.
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According to stock market experts, strong Q3FY24 results, dominant market position, and rotation in the PSU basket towards shares that didn’t participate much in the PSU stocks rally. They said that LIC share price was trading at a discount while the industry PE was at the multiple of 2.
Triggers for LIC share price
On reasons that fueled LIC share price, Omkar Kamtekar, Research Analyst at Bonanza Portfolio said, “Life Insurance Corporation of India (LICI) announced its results on 08th February to which the markets gave a rousing reaction as the stock jumped nearly 6% in early trade. The results were a prelude to the new strategy devised by the management to improve the VNB margin by improving the product mix to increase the contribution of revenue from non-par products.”
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“In 9MFY24 the total APE de-grew by 4.7% to ₹35,790 crore as the Individual Par business was down by 4.7% to Rs. 20,203 crore. However, what enthused the street was the 49.1% jump in the Individual Non-par business, driven by a 412% rise in the Individual saving business. Consequently, the share of the non-par business has come up to 14% in 9MFY24 from 9.5% in 9MFY23,” Kamtekar said.
Listing out the reasons that have pushed LIC share price in recent sessions, Shreyansh V Shah, Research Analyst at StoxBox said, “There are a few reasons behind it including its performance in Q3FY24 which saw around a 49% jump in its net profit which was highly anticipated by investors due to higher net premium. Additionally, the firm received a tax refund of Rs. 21,741 crores from the Income Tax Department for seven assessment years out of a total of Rs. 25,465 crores which improved the bank’s profitability. Furthermore, the insurer recently launched a novel plan encompassing individual savings and whole life insurance called LIC’s Jeevan Utsav that allows scope to pay limited premiums featuring guaranteed additions throughout the premium-paying term. This was cheered by investors and it received an overwhelming response in the market.”
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“LIC benefitted from its dominant market position and the market confidence towards PSU companies and we sense that there was some stock rotation within the PSU basket towards counters which did not participate in the rally and were available at reasonable valuations. We believe that the insurer’s AUM growth due to their high stake in the stock market which is experiencing a bull run also contributed to the gains,” the StoxBox expert added.
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Attractive valuations
“Along with the improved performance, LICI was trading at a material discount to its Embedded Value (EV), whereas peers its peers were available at an average EV of 2x. This undervaluation coupled with the strategic shift by the LICI management to sacrifice overall growth to augment profitability has started to bear fruit. It is now critical to build on this execution. Despite the rise in the VNB margin LICI continues to be a laggard with other insurers boasting VNB margins of 25%+. Therefore, LICI has a long execution journey to travel,” Bonanza Portfolio expert said.
