LIC’s stock is jumping! What’s the matter??

India’s insurance giant LIC is on a roll, growing 27% in less than one month!!

2023 started on a positive note for LIC’s share, which had severely disappointed its IPO investors. 

However, January 2023 started well as it surged over 6% in the first 2 sessions of the year as it reclaimed the Rs 700 mark and breached its immediate resistance at Rs 719.45. Although it proved to be too much for the stock, it was hovering around the resistance until Hindenburg came out with its malicious report.

As the Indian index tanked due to the scathing allegations against the Adani Group, LIC was also caught in the crossfire as the stock wiped out all the gains it made over two months. In February, it was revealed that LIC was a major stakeholder, 2-9% each, in 7 Adani Group companies, which led to greater selling pressures as it reported its highest intraday loss of over 8%!

Although buyers tried to put up a fight, sellers overpowered them and fell below the Rs 600 mark. By the end of February 2023, LIC had lost 17% in two months! 

When March arrived, buyers took interest once again as the stock climbed back to Rs 600, but the momentum was short-lived as the US banking crisis in March 2023 resulted in panic selling in the Indian market. LIC entered a significant downtrend which lasted throughout March 2023. LIC registered a loss of 22% in the first quarter of 2023 as it hit an all-time low of Rs 530.05 per share!

However, the stock rebounded from that level as FPIs turned buyers once again and the Nifty 50 began climbing after declining below the 17,000 mark. Although Nifty 50 made significant gains throughout April, LIC was consolidating with minimal movement. The stock started earnestly climbing in May 2023 when investors were expecting good results from the company. In the latter part of May, LIC’s stock jumped almost 4% when the company beat all analyst expectations and reported a 5x time surge in profits! 

June 2023 saw the stock’s movement slow down temporarily as the stock tested its support at Rs 594.90 multiple times before resuming its climb. With a strong support established, the stock continued climbing alongside Nifty. Throughout June, July, and August, the stock climbed steadily while testing its immediate resistance at Rs 659.20.

Bulls took charge once again as the stock breached the resistance, but it was considered premature as the stock declined shortly thereafter as prices sank back below the level. September and October saw bears return to the scrip as the company received a notice for GST worth Rs 290 crores and Nifty had touched the 20,000 level and declined below 19,000 during that time.

November saw bulls return as Nifty began climbing once again and LIC followed suit. The movement remained minuscule initially as LIC reported a 49% decline in Q2FY24 profits but the stock did not report any major movements.

However, the stock skyrocketed on 24th November 2023 when the Indian Supreme Court passed a judgement in favour of the Adani Group which sent all Adani Group stocks soaring. LIC followed suit as it breached two resistance levels it struggled against within a month!

On its close on 8th December 2023, the stock hit its highest level in 18 months and registered a gain of over 25% within three weeks, regaining its lost valuation of Rs 5 lakh crores!

 

What’s the future outlook??

Fundamentally, the company’s latest results were disappointing. Profits declined 50% to Rs 7,925 crores while net premium income, the insurer’s main source of income, tanked 19% to Rs 107,396 crores. Moreover, the insurer reported a 25% YoY decline in premiums collected in November 2023.

However, this was a short-term decline. Moreover, the company’s solvency ratio improved by 2 bps while its AUM grew 11% to Rs 47.43 lakh crores!

 

Technically, the stock’s  is at 70.17, which indicates that the stock is overbought. Moreover, the stock is trading well above its 5, 20, 50, 100, and 200-day averages.

As the stock was surging due to the growth in Adani Group’s shares, which LIC has high exposure to, the stock saw a sharp correction when it reached its resistance at Rs 822.70. It fell to Rs 750 per share as Bears drove the prices down. However, Bulls drove the prices back up as it challenged its resistance once again and breached the level on Thursday.

The latest candlestick was a spinning top, indicating a fierce battle between buyers and sellers which ended in the victory of the sellers as the share price settled above the resistance after almost 15 months!!!

Most brokerages have a positive view of the stock’s performance with some citing targets as high as Rs 1,000!

In the longer term, prospects still look good. Life Insurance Corporation of India (LIC) is the largest insurer in India which has a market share of 58.78% in the market! Moreover, it is a PSU that manages over Rs 47 lakh crores in assets, making it one of the largest asset managers in the country.

India is one of the most untapped markets in terms of insurance with an insurance penetration of less than 7%! At such low levels, India has an Embedded Value (a metric used to measure the consolidated value of shareholders’ interest in the insurance company) of Rs 6.6 lakh crores. Moreover, the IRDA, India’s insurance regulator has an “Insurance for all by 2047” plan which will greatly benefit LIC, the largest player in the country!

Thus, the stock could see some correction in the near term but is expected to reach its immediate resistance at Rs 822.70 per share before the end of 2023, in the near term. In the long term, the company, enjoying a dominant position in the growing Indian insurance market, is set to gain a lot, making it a bright long-term investment prospect.