Mumbai: Shares of
Insurance have given a technical breakout after the 5.8% run-up on Thursday ahead of the company’s board meeting on Friday to discuss a share issue through preferential allotment. The stock, which has hovered around Rs 700 since December last year, broke a crucial obstacle of Rs 720 on higher volumes, paving the way for gains of as much as 12% from current levels, said analysts.
In the previous seven trading sessions, delivery volumes of HDFC Life have risen from 40% to 68%. About 1.76 crore shares were traded on Thursday compared to a daily average of 58.72 lakh shares in the previous 10 sessions. The surge in trading and delivery volumes and open interest activities suggest that this rally could extend to Rs 850 levels, said analysts.
“HDFC Life has given a consolidation breakout of last eight months by holding above Rs 745 and price-volume consolidation breakout suggests an immediate move in the stock in the next few sessions,” said Chandan Taparia, derivatives & technical analyst, Motilal Oswal Financial Services. “Now it has major support at Rs 745 to commence a fresh move towards Rs 820 and Rs 850 zones.”
The board of HDFC Life will meet on Friday to consider a fundraising plan by issuing equity shares or other securities via preferential allotment. The stock has risen 5.3% in the past six months as against 15% gains in the benchmark Nifty.
“The HDFC Life stock has seen a long build-up in the recent past and has formed a long bullish candle on the daily chart which indicates the stock is likely to exhibit bullish momentum in the near term,” said Rajesh Palvia, head technical derivatives, Axis Securities. “The stock is trading above all its long-term moving averages and chart pattern indicates it can move towards Rs 820-840 in the short term. One should use any pullback towards Rs 745-735 as buying opportunity.”
Though the stock’s valuations are rich, analysts said its superior business franchise and margin expansion is keeping investor interest strong in the company. HDFC Life currently trades 16.8 times its book value or 3.8 times FY23 estimated embedded value (EV), which is at a premium compared to its peers ICICI Prudential Life and SBI Life.
Analysts said new business premium has grown at a compounded rate of 23% between FY17 and FY21. Value of new business margin expanded 410 basis points to 26.1% during this period. The company has reported net profit of Rs 1,360 crore for FY21.