Do you have this core portfolio stock that promises double-digit earnings, multibagger performance?

As a sector, insurance has posted double-digit growth in the last few quarters. Under-penetration in the insurance space as a whole, or possibly life insurance, is high in India.

When we look at insurance globally, numbers reveal we are way behind. Even among developing countries, Thailand, South Africa, Malaysia and many others are way ahead of India.

The government’s push has gradually increased insurance penetration and has led to a proliferation of insurance schemes.

"The growth in the industry is picking up. When we look at life insurance, there are many players and few of them are clocking double-digit growth every year. Players like HDFC Life, SBI Life, ICICI Prudential and Max Life have seen double-digit CAGR in terms of life insurance premiums," Mustafa Nadeem, CEO, Epic Research, told Moneycontrol.

HDFC Life dominates the market with players such as SBI Life and ICICI Prudential. In fact, they have recently expanded their share, which has seen a growth of 12 percent. The brand and the reach of HDFC Life are for all to see, as its recent results look promising from a long-term perspective.

Company recorded an impressive topline growth in Q1FY20, with strong traction seen across savings, protection and retirement solutions while maintaining focus on profitability.

The total premium rose by 45 percent, while the new business margin saw a growth of 29 percent. The management is also confident of continued digitisation and reducing its dependence on the parent company.

In Q1FY20, the company expanded its market share in the private sector to 25.1 percent, as compared to 22.3 percent in Q1 FY19, based on total new business received premium.

Further, the company has improved its overall new business margins from 19.9 percent in FY16 to 24.6 percent in FY19. This has led to an outperformance by the stock in the current year.

"The consistency and stability in financial performance on QoQ basis has been driven by a rise in premium income. The tax incentives on insurance products make the insurance industry more attractive. And thereby, leading to a rise in premium income. The insurance industry holds an optimistic outlook and is expected to grow by 12-15 percent on annual basis in the upcoming years,” says Gaurav Garg, Head of Research at CapitalVia Global Research Limited- Investment Advisor.

Prashanth Tapse, AVP Research at Mehta Equities, also believes that the insurance is the next rising sector. Structural factors such as an economy target of $5 trillion by 2024, an expanding share of insurance products within financial assets, an increase in working population and growing urbanisation will be the key to the growth of the sector.

Efficient use of distribution channels (bank support), healthy persistency ratios and higher new business mix from protection business will drive growth, he says.

Hence, experts believe that the double-digit growth is expected to continue not only in HDFC Life but also the entire sector in coming quarters.

"The company seems quite sustainable in a near term backed by young insurable population and growing awareness of the need for protection and retirement planning will support the growth of insurance," says Garg.

He recommends accumulating HDFC Life with a target price of Rs 615, implying 14 percent potential upside from current levels.

Siddharth Sedani, Vice President-Equity Advisory at Anand Rathi Shares & Stock Brokers, says the sector growth looks sustainable. He expects HDFC Life to grow at a CAGR of 21.2 percent in the next two years.

Insurance sector is also the top gainer of foreign equity inflows in the current financial year.

Institutional players are looking at insurance companies as stable companies in the current turbulent market, he says.

Tapse agrees with Sedani. He expects HDFC Life to deliver a healthy CAGR growth in between 20 and 22 percent in overall business parameters over FY20-21, with improved margins.

He also sees a healthy growth in new business opportunity, as India has more than 65 million white collared addressable populations, of which less than 5 percent have an insurance cover.

Tapse says people are becoming more aware of insurance as a default financial product and HDFC Life is well placed to tap the opportunity. Hence, for investors looking for a high quality long-term business with consistent earnings growth, HDFC Life is the best in class investment opportunity at the current levels, he says.

Tapse advises investors to add/ hold HDFC Life as one of the hard-core portfolio stock for life time and witness the making of multibagger performance in three-five years. The risk reward seems to be much favourable at the current juncture, he says.

Mustafa Nadeem also expects the stock to give double-digit returns.

"There were recent swings and news that were not more than noise when we saw the stock gap down 7 percent due to Standard Life stake sale. That kind of things may continue to happen since the Standard Life would likely to monetise. But we have seen the stock surviving that as well. The liquidity is another risk to this space but in the present scenario with RBI cooling off the rates, we believe this sector, for now, may enjoy its upside,” he says.

On the technical front, Nadeem says the stock may see some hurdle at around Rs 550-560, as it is its all-time high.

With that, it is enjoying high PE in the industry but that is attached to any stock that has a big market share.

“One should utilise the dips and once stock is able to sustain above Rs 560, we believe it should see an upside towards the target of Rs 660-670 in the next one year, implying 22-24 percent potential upside from current levels,” he says.

According to Tapse, the stock could go more than Rs 675 in the next 12 months, implying 25 percent potential upside.

Disclaimer: The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.