LIC hits over 6-month high; stock gains 10% in two days

In past one month, the stock price of LIC has surged 20 per cent, as against 1 per cent decline in the S&P BSE Sensex.

Shares of Life Insurance Corporation of India (LIC) hit an over six-month high of Rs 754.40, as they gaining 3 per cent on the BSE in Tuesday's intra-day trade, in an otherwise weak market.

In the past two trading sessions, the stock of state-owned insurer has rallied 10 per cent. It traded at its highest level since June 7, 2022. At 09:40 AM, LIC shares were trading 2 per cent higher at Rs 749.80, as compared to 0.82 per cent decline in the S&P BSE Sensex.

In the past one month, the stock price of LIC has surged 20 per cent, as against 1 per cent decline in the benchmark index. According to media reports, the government aims to appoint a private sector professional as the first chief executive of LIC. Government plans to modernise the largest insurer after a disappointing stock market debut, the report added.

According to Business Standard report, the finance ministry has proposed a host of amendments to the insurance laws - from granting insurers a composite licence to allowing them to sell different financial products, and increasing the retirement age of the chairman and whole-time members of the Insurance Regulatory and Development Authority of India (Irdai). CLICK HERE FOR FULL REPORT

With the Central government proposing to allow composite insurers, there will be increased cross selling opportunities, operational expense synergies and diversification if LIC and the four public sector general insurers are merged, said Jefferies in a report.

LIC has improved on growth & profitability; PSU general insurers have higher combined ratio & lower solvency margin. Global experience suggests Pros including better cross-sells, opex synergies & diversification. Still, synergies have undershot expectation pushing some back to monoline. Capital release & tax neutrality can help, the brokerage firm said in a report.

Meanwhile, LIC’s first-year premium rose by 50.5 per cent for November 2022; vs an increase of 32 per cent witnessed in November 2021. Meanwhile, Private insurers reported a near-flat growth rate of 1.9 per cent in November 2022 vs. growth of 11 per cent in October 2022 and 58.6 per cent in November 2021. The monthly increase can be attributed to a continuous rise in group single premiums by LIC and individual non-single premiums, especially by private companies, however, this increase was partially offset by a fall in group single premiums in the private companies.

Further, growth in select smaller private companies has outpaced their larger private counterparts. As per the year-to-date numbers, LIC reported a growth rate of 43.3 per cent against a decline of 0.9 per cent reported for the same period last year.

Meanwhile, the growth rate of its private peers decelerated to 18.2 per cent from 29.8 per cent last year. LIC maintains its dominant share in the first-year premium (67.7 per cent vs. 32.3 per cent share of private companies), CareEdge said in its sector report.

Insurance demand is positively correlated with economic growth and grows at a multiple to the GDP. The premium growth of life insurance companies is anticipated to remain healthy for FY23 as it would be the first full year without any Covid-related restrictions.

The growth would be driven by a supportive regulatory landscape (ease of doing business, Bima Sugan), strong demand for annuity and protection plans along with increased persistency levels. Other factors include an intense push to increase insurance coverage, especially in the rural populace, product innovations/customisation and allowing corporate agents to take on additional companies. Overall, the outlook is expected to be positive in the medium term, CareEdge said.

Technical View

Bias: Positive

Target: Rs 768; Rs 800

Support: Rs 720

Shares of LIC are seen trading above the higher-end of the Bollinger Bands on the weekly chart for just the second time since its debut. Last week, too, the stock surged past the higher-end of the weekly Bollinger Bands, but eventually pared gains and closed within the bands.

Going ahead, the bias for the stock is likely to remain bullish as long as the stock sustains above Rs 720-level, i.e. the higher end of the weekly Bollinger Bands.

Similarly, on the daily scale, the stock looks fairly placed above the 20-, 50- and 100-DMA, placed at RS 669, Rs 639 and Rs 651, respectively. Thus, indicating that the the overall trend for the stock is also positive.

The monthly Fibonacci chart, indicates an upside target of Rs 768, above which the stock can rally to hit the Rs 800 mark.

(With inputs from Rex Cano)