LIC shares may see 12-17% potential upside in 3-4 weeks, says Axis Securities

Axis Securities in a technical note on Friday said Life Insurance Corporation of India (LIC) stock has successfully breached its 'multiple resistance zone' at Rs 754, indicating a positive bias in its current trajectory. LIC has witnessed a breakout with strong volume, signifying an influx of market participation at the breakout, Axis Securities said while suggesting a ‘buy’ on the stock with a potential 12-17 per cent upside over the next 3-4 weeks.

The brokerage suggested a buy range of Rs 790-774 for LIC, with a target of Rs 874-916 levels. The trend reversal level is Rs 740, Axis Securities.  At 9.36 am, the scrip was trading at Rs 801.20, down 1.73 per cent.

The brokerage said the weekly and daily strength indicator RSI is on a bullish trajectory, holding above the reference line and indicating a positive bias. The relative strength index is a momentum indicator used in technical analysis, which measures the speed and magnitude of a security's recent price changes to evaluate overvalued or undervalued conditions in the price of that security.

Axis Securities said the near term target for the LIC stock is at Rs 874 and that the stock has potential to move towards Rs 916 levels.

In the past, the LIC stock saw a breakout above the neckline of an Inverted Head & Shoulder pattern at Rs 680 on the weekly chart, which was accompanied by a robust bullish candle in late November 2023, that Axis Securities said initiated the strong uptrend. An Inverted Head & Shoulder pattern is a bullish reversal pattern, suggests a potential upward trend in the security's price.

Insurance stocks have been in news of late after Insurance Regulatory and Development Authority of India (IRDAI) released a draft note on December 12 , proposing to amend the regulations pertaining to calculation of surrender value (SV) for non-linked insurance products. SV in insurance policies refers to the amount a policyholder receives from the insurance company, if they terminate their policy before it reaches maturity.

Analysts said caps on surrender penalties will have a definite negative impact on life insurance companies’ VNB margins.

"IRDA’s exposure draft on product regulations offers a framework to determine the surrender value (capping surrender charges). However, there is no clarity on specific ratios to be considered to calculate surrender values; hence, it is too early to assess its impact on life insurance companies under coverage. Apart from a lower surrender income, risk of lower persistency looms on the non-par business, even as we expect streamlining distributor payouts to partially offset the impact," Kotak Institutional Equities said.

Nomura India said if the proposal is accepted, life insurance companies may modify the construct of their portfolios to maintain profitability. It may also have significant implications as far as product design, pricing, and viability are concerned for non-linked products.

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