Covid second wave: Insurance stocks may provide cover in a falling market

All the three insurance stocks are successfully holding the support of 200-DMA and may see upside of over 5 per cent in the near-term

With Covid-19 infections rising at an alarming rate in the country, hospitalisations have gone up substantially. This, in turn, has resulted in a spurt in demand for health insurance products recently. 

"In the last couple of weeks, as the number of Covid-19 infections increased, there has been a spurt in demand for health insurance. The demand for such products has more than doubled than what we see normally during this period. April, typically, is a slow month for health insurance but we are seeing a very rapid surge in demand. And, the demand is for comprehensive health products with higher sum assured and not so much for Covid-specific products," says Amit Chhabra, business head, health at Policybazaar.com. 

Given the pertaining health crisis, the health insurance portfolio of general and standalone health insurers has seen considerable growth last fiscal year, driven by huge demand for retail health products. In FY21, the retail health segment saw 38 per cent growth to Rs 26,258.39 crore from Rs 19,013.97 crore. READ ABOUT IT HERE

At the bourses, however, stocks of life insurance firms underperformed the benchmark Nifty50 index in the previous financial year. As against a 71 per cent rally in the 50-share index, shares of SBI Life, HDFC Life, and ICICI Prudential Life Insurance jumped between 25 per cent and 58 per cent on the National Stock Exchange (NSE).

The underperformance has continued even in the current calendar year. On a YTD basis, the headline Nifty index is up 3 per cent on the NSE while the insurance stocks have given returns between -1.22 per cent and 1.12 per cent.

Going-forward, analysts at Emkay Global believe the growth trend will remain superior in the upcoming months with the base effect of last year (lockdowns due to Covid-19) coming into play. 

"Both LIC and private players reported strong growth, pointing to a recovery in ULIPs and non-par products in the seasonally strong fourth quarter. We expect the healthy growth trend to continue in coming months due to the favorable base effect of last year. However, surge in the retail business along with the nature of products sold would be a key thing to watch out for," they said in a note dated April 20.

Against this backdrop, should you bet on insurance stocks to insure your portfolio? Here's what charts show:

SBI Life Insurance Company Limited (SBILIFE)

Likely target: Rs 970 - Rs 985 (sustain above Rs 935)

Upside potential:  3.74% - 5.35%

The stock is strongly holding the 200-days moving average (DMA), currently placed at Rs 861 levels, despite the overall weakness in the market. Going forward, a sustained move above Rs 935-mark may trigger an upside rally towards Rs 970 and Rs 985 levels, as per the daily chart. The Moving Average Convergence Divergence (MACD) has managed to sustain above the zero line, suggesting the trend to remain firm on the upside. CLICK HERE FOR THE CHART
 
HDFC Life Insurance Company Ltd (HDFCLIFE)

Likely target: Rs 750 (breakout above Rs 720)

Upside potential: 4.17%

The current scenario shows a sideways movement in the range of Rs 720 to Rs 660 levels. The 50-DMA, currently placed at Rs 700 levels, is also acting as a resistance on a closing basis. A sustained breakout above 50-DMA, supported by a firm buying momentum above Rs 720, may trigger a big breakout towards a new all-time high of Rs 750 levels, as per the daily chart. CLICK HERE FOR THE CHART
 
ICICI Prudential Life Insurance Company Ltd (ICICIPRULI) 

Likely target: Rs 525 - Rs 535

Upside potential: 4% - 6%
The recent decline has seen the stock dipping below the 200-DMA. However, the reversal has sustained with a gap-up close, which is attempting to absorb the selling pressure around Rs 500 levels. Now, as the MACD conquers the zero line on the upside, any move above Rs 500 should see addition in long bias. Moreover, a close above the resistance of Rs 500 should see Rs 525 and Rs 535, as per the daily chart. CLICK HERE FOR THE CHART