LIC settles over 5% lower after strong Q3 results; cautious approach advised

LIC share price: LIC shares settled 5.42 per cent lower at Rs 1,022.30 on the BSE in Monday’s trade (February 12), even as brokerages turned upbeat on the counter post its Q3 performance.

The country’s largest insurer for the quarter ended December 31 posted a PAT of Rs 9,444 crore as against Rs 6,334 crore reported in the same quarter a year ago. This implied a rise of nearly 50 per cent in the company’s profit during the review period.

The company transferred Rs 7,692 crore from its non-participating fund to a shareholders' fund for the quarter, it said. LIC had transferred Rs 5,670 crore in the year-ago quarter.

At around 12:38 pm, shares of the country’s leading insurance player traded with a cut of around 3 per cent at Rs 1,049.75, while the day’s high price is Rs 1,125.

On Friday (February 9), shares of the company hit an all-time high of Rs 1,175 apiece after announcing its Q3 results.

Global brokerage JP Morgan has upgraded the counter with an ‘overweight’ rating and has increased the target price to Rs 1,340 from the earlier Rs 690 apiece, signalling an upside of 24 per cent from the last close.

The brokerage pointed out that the value of new business, or VNB, at the leading state-run insurer during the review period has been higher than that of private peers. Additionally, it highlighted that business growth has been robust at the company, with premium growth in the first month of CY 2024 remaining strong, but there has been minimal impact due to the increase in surrender value.

In mid-January, the IRDAI released an exposure draft that favoured an increase in the surrender value primarily for non-participating insurance products. Furthermore, some modifications were suggested concerning the calculation of surrender charges.

JP Morgan also noted that LIC is not focused on ULIP products and estimates the company’s price to enterprise value at 0.9 times versus private players, for whom the metric is pegged at 1.6 times to 2.4 times.

The brokerage also highlighted that there is room for further upside in the stock after it has surged and moved above its IPO issue price of Rs 949.

LIC shares have given a superb return of 73 per cent over one year.

Technical Outlook

Jigar S Patel, senior manager of equity research at Anand Rathi, said that the counter has seen a substantial rally over the last four months, gaining 577 points, which signifies a remarkable 96 per cent increase.

This indicates strong bullish momentum in the stock. Further, the analyst mentioned that despite the recent rally, a bearish crab pattern has emerged around the Rs 1,100–Rs 1,500 zone on a monthly scale. Such a pattern typically suggests a potential reversal in the uptrend, indicating a need for caution among investors.

The expert sees resistance to be placed in the Rs 1,100–Rs 1,150 zone, which suggests that the stock price might encounter difficulty surpassing this level due to the presence of the bearish pattern.

Considering the potential resistance and the bearish pattern, investors should consider booking profits near the Rs 1,050 - Rs 1,100 zone. This means selling their LICI positions to secure gains, the expert added.

The expert then suggests that investors are advised to wait for a meaningful correction, implying that the stock may undergo a pullback from its current levels.

Nonetheless, if LIC manages to close above Rs 1,150 on a monthly scale, it could signal further bullish momentum, potentially driving the price towards the Rs 1,200 level within a month.

In summary, a cautious approach is recommended for investors in the stock. This includes considering booking profits near the Rs 1,050–Rs 1,100 zone and closely monitoring the stock's behaviour for potential further upside or correction, especially in light of the bearish crab pattern formation.