India’s Largest Insurance Co. Falls 10% to All-Time Low!

The Indian markets cheered Budget 2023 with Nifty 50 rallying over 300 points to the day’s high of 17,971.5. However, the panic selling in Adani Group companies took over the broader market sentiments which resulted in a steep decline in many frontline indices. Many stocks took a heavy beating after Credit Suisse (SIX: CSGN ) assigned a zero lending value to bonds issued by Adani Group companies, which was the main catalyst for today’s heavy selling. 

Also, this year’s budget wasn’t a good one for the insurance companies as tax exemption status on proceeds of insurance policies having an aggregate premium of more than INR 5 lakh has been removed. This is not applicable for proceeds received on account of death. This move has lowered the incentive to buy high-value insurance policies which is a direct hit to insurance companies.

Image Description: Daily chart of LIC with volume bars at the bottom

Image Source: Investing.com

One stock that fell victim to both the deteriorating sentiments of the insurance sector and worries regarding the Adani Group is Life Insurance Corporation of India (NS: LIFI ). It is the largest insurance firm in the country with a market capitalization of INR 4,21,213 crores and has exposure worth INR 36,474.78 crores to the Adani Group. Being an insurance company coupled with exposure to the financial instability of Adani Group, today’s session was a double whammy for LIC shares.

The valuation of the insurance sector is already on the higher side with prominent peers such as HDFC Life Insurance Company (NS: HDFL ), SBI Life Insurance Company (NS: SBIL ) and ICICI Prudential Life Insurance Company Ltd (NS: ICIR ), all trading at a P/E ratio of 95.15, 83.09 and 88.16, respectively. The valuation of LIC is the second most expensive with a P/E of 102.1 (as per FY22 earnings). These rich valuations, after taking a hit by lowered incentives of high-value policies resulted in humongous double-digit losses.

The share price of LIC nosedived 10.7% to an all-time low of INR 582.95. Falling to an all-time low is definitely not a good sign for any stock and therefore investors willing to add this stock to their portfolios should wait for a reversal and refrain from trying to catch a falling knife. Although the stock is forming a bullish divergence as of today, but investors should wait for a visible demand jump and abating selling pressure before making an investment decision. Even on the upside, the potential of crossing the resistance of INR 655, from the CMP of INR 598.45 is a bit difficult.