Sun. Jul 21st, 2024

Shares of public sector insurance companies – Life Insurance Corp of India (LIC), New India Assurance (NIA) and General Insurance Corp (GIC) – rallied 10-20% in Friday’s trade on strong management outlooks and growth expectations from the market players.

Shares of NIA were up 20%, GIC gained 15.45% and LIC rose 9.71%, on Friday. These stocks have given year-to-date returns of 60.65%, 62.11% and -4.5%, respectively.

“LIC has announced the release of 3-4 new products in the coming months along with expectation of double-digit growth in value of new business. New India Assurance also has a strong market positioning with plans to penetrate deeper into the market. General Insurance Company’s rating was upgraded to positive over strong capitalisation by global agency AM Best, today, which led to a spike in prices,” said Sneha Poddar, associate vice president – equity research at Motilal Oswal Financial Services.

“Despite muted markets, PSU insurance shares surged after a long time mainly on the back of reports stating that industry growth outlook has improved to ‘positive’ from ‘stable’,” said Prashanth Tapse, senior vice president, Mehta Equities.

After LIC announced its Q2 and H1 results, brokerages Motilal Oswal and BOBCapital gave ‘buy’ ratings, with Motilal Oswal setting a target price of ₹850, an upside of 25.4% from current levels.

Some analysts believe that the recent RBI’s risk-weight revisions for banks and NBFCs may also have supported insurance company shares. The RBI’s action raised the risk weights to 125% for NBFCs and 150% for banks, which will affect their profitability.

“PSU Insurance companies have been seeing a steady up-move for the last couple of days. This may be due to the external factors like increased risk-weights for NBFCs which may have led to institutional outflows from these stocks to insurance companies,” said Veer Trivedi, research analyst at Samco Securities.Analysts believe that even though these shares may be in the temporary overbought category, investors can enter this segment as continuation in momentum and upside are expected in the coming months.

Poddar believes that these stocks are available at attractive valuations for investors.

“The larger texture of LICI, GICRE and NIA are bullish and traders can buy the insurance stocks at dips. In the immediate term, NIA and GICRE might see some consolidation as they have entered the temporary overbought category,” said Amol Athawale, deputy vice president at Kotak Securities.

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