Domestic brokerage firm Yes Securities, in a recent report, upgraded its stance on the Indian Life Insurance sector from cautious to positive. It has also upgraded various stocks from the space and named ICICI Prudential as its top pick forecasting a 40 percent upside in the stock.
The upgrade in the life insurance sector comes on the back of channel check outcomes that suggest better than expected persistency in April and May 2020.
The brokerage also raised its long term value of new business (VNB) growth forecasts as it believes that while growth in protection will continue, savings should make a stronger comeback as the economy bounces back. It has also increased profitability (VNB Margins) assumptions on confidence that the companies will now be able to pass on the increase in reinsurance rates.
Among stocks, the brokerage upgraded its rating on HDFC Life from 'reduce' to 'add' and that of SBI Life and ICICI Prudential Life from 'add' to 'buy'.
"We rate ICICI Prudential Life as the top pick in the sector. The second wave of COVID 19 outspread remains a key risk to our call," the report quoted.
As per the brokerage ICICI Prudential has attractive valuations and is currently trading at a steep discount to peers like SBI Life and HDFC Life. The NBFC's product mix has been changing towards a higher profit protection segment, faster than peers and the current market recovery bodes well for unit-linked insurance plans (ULIP) segments. Yes Securities has a 'buy' call on the stock with a target at Rs 537 per share.
Meanwhile, for SBI Life, the brokerage feels that it offers a healthy product mix with a rising share of protection and a non-par book, resilient ULIP portfolio. Significant scope of penetration for the bancassurance channel, nascent in the online channel. The stock is trading at a discount to HDFC Life. The brokerage has a target price of Rs 1,006, indicating an upside of 26 percent.
Yes Securities estimates a 10 percent upside in HDFC Life for a target price of Rs 567 per share. The brokerage said that HDFC Life deserves premium valuations, at a premium of 64 percent to SBI Life and 89 percent to ICICI Prudential Life. It also said that the NBFC is the best franchise in terms of a diversified product mix as well as a distribution channel.
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