LIC stock portfolio down 12% since September 2024; Kotak cuts target price for life insurer

Life Insurance Corporation of India Ltd (LIC) valuations are inexpensive and the stock is still a 'Buy', Kotak Institutional Equities said on Thursday, as it reduced its fair value target on the counter to Rs 1,175 from Rs 1,250 earlier. The brokerage said the recent correction in the stock market and a severe slowdown in business, following the surrender value guidelines, continued to weigh on the prospects of LIC.

Trends in the stock market have high sensitivity and drive over 50 per cent of its embedded value (EV), the brokerage noted, as it believes the slowdown in annual premium equivalent (APE) and the management’s stance on dealing with the same are key monitorables.

LIC stock portfolio

Kotak said LIC’s equity investment book has declined 6.9 per cent to Rs 13,73,900 crore in the March quarter from Rs 14,76,300 crore at 2024 end, after a 5.3 per cent fall over Rs 15,58,400 crore in Q3. In total, LIC's equity portfolio is down 12 per cent since September 2024. On financial year-to-date basis, the overall equity investment book is still up 2.2 per cent over Rs 13,44,100 crore as per Kotak's calculation.

Kotak considered LIC’s last published holdings of over 1 per cent in BSE 200 companies to calculate the latest market value of its investments.

"LIC changed commission structure, repriced products and tweaked product design to improve persistency from 3QFY25, i.e., post-implementation of surrender value guidelines, similar to peers. Unconfirmed media sources suggest some backlash on new commission structures in October 2024; this seems to have led to a slowdown in business for LIC," Kotak said.

What's next?

LIC reported a 24 per cent YoY decline in APE in 3QFY25, following growth of 24 per cent in 1HFY25. The company reported an 11 per cent decline in January and a 21 per cent decline in February, Kotak said adding that March is typically a heavy month and, hence, has a high ask rate.

LIC has launched multiple non-par products over the past few quarters and recently launched a pension product to drive high-margin business.

"We anxiously watch trends in its growth and LIC management’s next steps of action to arrest the decline. We are cutting our FY2025 and FY2026 APE estimates to a 5 per cent decline and a 6 per cent decline from a 2 per cent decline and 2 per cent growth, respectively; this reflects weakness in business. We are already factoring in a VNB margin of 16.5 per cent in FY2026E, down from 17.4 per cent in FY2025E, reflecting the impact of surrender value guidelines," it said.