PSU insurers’ stocks surge on attractive valuation, RBI’s risk weight norms

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A combination of factors led to a surge in the share price of state-run insurance companies on Friday, with general insurer New India Assurance’s (NIA) stock hitting the upper circuit. Life Insurance Corporation of India (LIC) surged 10 per cent. The state-run re-insurer General Insurance Corporation of India (GIC Re) stock closed 16.7 per cent higher.


According to analysts, the rise in share price was influenced by various factors — including low float and part rotation out of lending stocks after the Reserve Bank of India’s (RBI) decision to increase the risk weightage on unsecured loans.

“Insurance stocks including NIA, LIC, and GIC Re have done well over the last few days due to low float and part rotation out of lending stocks into these stocks, which is available at attractive valuations compared to their private peers,” said Deepak Jasani, head-retail research, HDFC Securities.


Low-float stocks are companies with a relatively smaller number of shares available for public trading. It does not essentially mean that the company has very few shares in total.


“PSU insurers were beaten down and some were trading below their issue price. So there is some buying interest in the space. Private insurers were doing well and since they operate in the same sector and are now available at cheaper valuation, there are takers for them,” said UR Bhat, co-founder of Alphaniti Fintech.


“In terms of valuation, LIC is one of the cheapest insurance companies (trading close to 1x Price to Embedded Value [P/EV]) as compared to that of 2.0-4.0x P/EV for private life insurance peers.” Said Sunny Agrawal, head of fundamental research desk, SBI Securities.


One of the reasons for the rise in LIC stock was comments from chairman Siddhartha Mohanty, who said LIC has also projected double-digit growth over the last year and plans to launch new attractive products.


On Thursday, GIC Re said that it has received a revision on its Financial Strength Rating (FSR) in its outlook from ‘stable’ to ‘positive’ from AM Best, a credit rating agency. The outlook highlighted the company’s robust financial standing.


“Despite muted markets PSU Insurance shares LIC, GIC and NIA surging up after a long haul mainly on the back of reports stating that industry growth outlook to ‘positive’ from ‘stable’. LIC has also projected double-digit growth over the last year and plans to launch new attractive products. GIC shares are also in demand after the company said that AM Best re-affirmed the existing ratings and additionally assigned India National Scale Rating (NSR) to the company,” said Prashanth Tapse, Senior VP (Research), Mehta Equities.


NIA informed the exchanges on Friday that the analysts and institutional investors will meet senior management on November 29, which has also led to the rise in its share price.

On a weekly basis, LIC increased by 10.24 per cent to Rs 677.7, GIC Re rose to Rs 307.6 (18.81 per cent) and New India Assurance increased to Rs 209.4 (37.90 per cent). 

Markets down marginally 


Equity benchmark indices Sensex and Nifty closed with modest losses for the second straight session on Friday, following selling in IT stocks amid a lack of fresh buying triggers. However, buying interest in banking counters helped the bourses limit the losses, the traders said. In a volatile trade, the 30-share BSE Sensex declined 47.77 points or 0.07 per cent to settle at 65,970.04. The Nifty slipped 7.30 points or 0.04 per cent to 19,794.70.

 


 During the day, it gyrated 207.59 points, hitting a high of 66,101.64 and a low of 65,894.05.

 


The Nifty slipped 7.30 points or 0.04 per cent to 19,794.70.

 


On the weekly front, the BSE benchmark climbed 175.31 points or 0.26 per cent, and the Nifty advanced 62.9 points or 0.31 per cent.

 


“Global shares drifted on Friday in the absence of guidance from Wall Street, which was closed for the Thanksgiving holiday on Thursday. Investors were sceptical of whether the US Federal Reserve is done with interest rate hikes that kept risk appetite in check,” said Deepak Jasani, Head of Retail Research, HDFC Securities.

 


Among the Sensex firms, HCL Tech, Wipro, Tata Consultancy Services, Tech Mahindra, Nestle, Tata Motors, Infosys, Bharti Airtel, UltraTech Cement and Tata Steel were among the laggards.

 


On the other hand, Axis Bank, HDFC Bank, ICICI Bank, JSW Steel, Mahindra & Mahindra and Kotak Mahindra Bank were the major gainers.

 


In the broader market, the BSE smallcap gauge gained 0.14 per cent, and the midcap index advanced 0.13 per cent.


Among the indices, teck fell 0.89 per cent, IT declined 0.88 per cent, FMCG (0.49 per cent), consumer durables (0.36 per cent) and telecommunication (0.25 per cent).

 


Commodities, financial services, healthcare, industrials, bankex and capital goods were among the gainers.

 


“The benchmark index traded on a tepid note following the weak German growth data, and trading volume was limited due to the US market holiday on Black Friday and the India market holiday on Monday next week.