Why LIC Share Price is Skyrocketing in the Last 4 Months?

Introduction

The Indian stock market has witnessed a staggering uptrend in the shares of Life Insurance Corporation (LIC) of India over the last four months. This period has seen LIC’s share price skyrocket from around ₹600 to a remarkable ₹1,066 apiece, marking an impressive 75 percent rally.

Strong Q3FY24 Results

One of the primary catalysts behind LIC’s surge is attributed to its robust Q3FY24 results. Analysts highlight that the announcement of these results on 8th February triggered a significant market reaction, with the stock jumping nearly 6% in early trade.

Dominant Market Position

LIC’s dominant market position has played a pivotal role in its upward trajectory. Market confidence towards Public Sector Undertaking (PSU) companies has further fueled the surge, indicating a significant shift in the PSU basket towards shares that previously didn’t participate in the rally.(Why LIC Share Price is Skyrocketing in the Last 4 Months?)

PSU Basket Rotation

Experts point out that LIC’s share price was trading at a discount while the industry Price-to-Earnings (PE) ratio stood at a multiple of 2. This, coupled with a rotation in the PSU basket towards shares that hadn’t participated much in the previous rally, contributed to the surge.

Reaction to Q3FY24 Results

Omkar Kamtekar, Research Analyst at Bonanza Portfolio, emphasizes the market’s enthusiastic reaction to LIC’s Q3FY24 results. The results were a precursor to the management’s new strategy aimed at improving the Value of New Business (VNB) margin by enhancing the product mix to increase revenue from non-par products.(Why LIC Share Price is Skyrocketing in the Last 4 Months?)

Management’s New Strategy

In 9MFY24, the total Annual Premium Equivalent (APE) experienced a slight decline of 4.7% to ₹35,790 crore. However, what caught the market’s attention was the remarkable 49.1% jump in the Individual Non-par business, driven by a substantial 412% rise in the Individual saving business.(Why LIC Share Price is Skyrocketing in the Last 4 Months?)

Financial Metrics Analysis

Examining the financial metrics further, the share of the non-par business increased from 9.5% in 9MFY23 to 14% in 9MFY24. This underscores a strategic shift in LIC’s approach to diversify its product mix and focus on non-par products.

Market Analyst Insights

Omkar Kamtekar’s Perspective

Kamtekar highlights the significant jump in the Individual Non-par business as a positive sign. The market reacted positively to the 49.1% surge, and LIC’s strategic moves to improve the VNB margin have been well-received.(Why LIC Share Price is Skyrocketing in the Last 4 Months?)

Shreyansh V Shah’s Analysis

Shreyansh V Shah, Research Analyst at StoxBox, provides additional insights into LIC’s recent sessions. He points out that LIC’s performance in Q3FY24, with a 49% jump in net profit, was highly anticipated by investors due to higher net premium.

In addition to robust financial performance, LIC reaped the benefits of a tax refund of Rs. 21,741 crores from the Income Tax Department. This substantial refund significantly improved the insurer’s profitability and contributed to the positive market sentiment.

The recent launch of LIC’s Jeevan Utsav, a novel plan encompassing individual savings and whole life insurance, further bolstered investor confidence. This plan, allowing limited premiums with guaranteed additions throughout the premium-paying term, received an overwhelming response in the market.

Furthermore, LIC benefited from its dominant market position, as well as a market shift towards PSU companies. There was observed stock rotation within the PSU basket towards counters that had not participated in the rally and were available at reasonable valuations.

Valuations and Long-Term Strategy

Shedding light on LIC’s attractive valuations, experts at Bonanza Portfolio point out that despite improved performance, LIC was trading at a material discount to its Embedded Value (EV). In comparison, peers were available at an average EV of 2x.

This undervaluation, coupled with the strategic shift by LIC’s management to sacrifice overall growth to augment profitability, has started to bear fruit. However, experts caution that despite the rise in the VNB margin, LIC continues to lag behind other insurers boasting VNB margins of 25% or more. This highlights the insurer’s long execution journey to align with industry benchmarks.(Why LIC Share Price is Skyrocketing in the Last 4 Months?)

Challenges Faced by LIC

While celebrating the surge in LIC’s share price, it’s crucial to acknowledge the challenges the insurer faces. Despite the rise in the VNB margin, LIC continues to be a laggard compared to other insurers with higher VNB margins.

This discrepancy may be attributed to LIC’s strategic shift, sacrificing overall growth to augment profitability. Experts suggest that LIC has embarked on a long execution journey to catch up with other insurers and attain higher VNB margins.(Why LIC Share Price is Skyrocketing in the Last 4 Months?)

Conclusion

In conclusion, the surge in LIC’s share price over the last four months is a result of a confluence of factors, including strong financial performance, a dominant market position, and strategic initiatives. While the insurer has seen substantial gains, it remains imperative for investors to exercise caution and consider various factors that may influence LIC’s trajectory in the future.(Why LIC Share Price is Skyrocketing in the Last 4 Months?)

Why has LIC’s share price surged in the last four months?
- LIC’s surge is attributed to strong Q3FY24 results, a dominant market position, and rotation in the PSU basket towards previously overlooked shares.(Why LIC Share Price is Skyrocketing in the Last 4 Months?)
What role did Q3FY24 results play in this surge?
- LIC’s Q3FY24 results triggered a significant market reaction, and the management’s new strategy to enhance the VNB margin further fueled the surge.(Why LIC Share Price is Skyrocketing in the Last 4 Months?)
Can LIC’s dominance be sustained in the market?
- LIC’s dominant market position, strategic initiatives, and positive market sentiment indicate a potential for sustained growth, but market dynamics must be closely monitored.(Why LIC Share Price is Skyrocketing in the Last 4 Months?)
Are there risks associated with LIC’s strategy shift?
- The strategic shift to sacrifice overall growth for profitability may pose challenges, and LIC is on a long execution journey to align with industry benchmarks.
How do LIC’s valuations compare to its peers?
- Despite undervaluation, LIC lags behind peers in VNB margins. However, the strategic shift is starting to bear fruit, indicating potential for improved valuations in the future.(Why LIC Share Price is Skyrocketing in the Last 4 Months?)

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