Nuvama bullish on HDFC Life, SBI Life, cautious on LIC

Representative image

Insurance stocks are fresh out of a rally and their valuations still look attractive, said Nuvama Institutional Equities Director Madhukar Ladha. He is bullish on HDFC Life and SBI Life but flags caution for LIC.

At 1pm on Monday, HDFC Life was trading up 0.36 percent at Rs 629.15 and SBI Life was up 40 percent at Rs 1267.75, but LIC was trading down 0.62 percent at Rs 621.50.

“I think the valuations are still quite comfortable, with SBI Life trading at about 1.9 times price to embedded value (EV) or HDFC Life trading at about 2.4 times price to EV. On an FY25 basis, this is still very attractive and much lower than long-term averages,” said Madhukar.

He is, however, cautious about LIC because the company’s insurance business values much lower in the LIC marked-to-market equity book that makes most investors prefer owning the broader market, rather than LIC as a stock. “I expect LIC to continue to trade at a substantial discount to the private sector life insurers,” he said.

Also Read: Aditya Birla Sun Life Insurance rolls out guaranteed pension plan Nishchit

Madhukar sees long-term growth in the insurance sector with increased protection growth and higher guaranteed savings product sales amid these high-margin products. He is bullish on the insurance sector because:

• Several unlisted private sector insurance players saw 20 percent year-on-year growth in their premium incomes while the performance of the listed companies was slightly more subdued.
• Regulatory regime has become more favourable towards insurance companies that has led to lowering of commission caps. The regulator is very pro-industry which has resulted in a freer hand and growth for these companies.
• The valuations for insurance companies were very attractive after the budget.
• There has been a change in the tax regime in terms of increase in taxation over policies which have ticket sizes beyond 5 lakhs. This has caused an increase in high ticket sales of insurance products during March.