LIC shares fall 3%, Jefferies advises buying despite cutting target

Shares of Life Insurance Corporation of India (LIC) have witnessed a 3% decline. The primary reason for this drop is the Value of New Business (VNB) figures for the second quarter being lower than estimated projections. Following this situation, the brokerage firm Jefferies has reduced its target for LIC shares, but has nonetheless provided three reasons for investors to buy this stock.

According to a report by The Economic Times, LIC has announced its financial results for the second quarter, recording a consolidated net profit of ₹12,115 crore, marking a year-on-year increase of 20%. Alongside this increase in profit, the company's net premium income has also seen a jump of 16%, reaching ₹1.47 lakh crore. The report states that this growth in net premium income was driven by an increase in single-premium collections.

LIC has also performed strongly in the investment sector. Net investment income in shareholders' accounts has seen a significant surge of 38%, now reaching ₹2,855 crore. This figure indicates that the company has earned significant returns through its investments. As another indicator of financial stability, the company's solvency ratio has also improved. Last year, this ratio was 2.13, which has now increased to 2.35. This rise in the solvency ratio suggests an improvement in the company's ability to meet its long-term liabilities.

LIC has also made progress in expense management. The company's expense ratio, which was previously 12.05%, has decreased to 10.26%. This reduction in the expense ratio reflects an improvement in the company's efficiency. Thus, despite improvements in key metrics such as profit, premium income, and solvency ratio, pressure was observed on the share price in the market as VNB figures were not as expected.

Although Jefferies has reduced the target price, they still consider the LIC stock to be attractive. The brokerage firm has provided three main reasons why investors should buy this share. However, the details of these reasons are not explicitly shown in the report, but Jefferies has clarified that despite the target reduction, the recommendation to buy the stock remains unchanged.

According to market analysts, VNB figures are very important for a large institution like LIC as they indicate the profitability potential from new business. When these figures are lower than estimates, a decline in share prices is observed in the short term. However, the improvement in the company's overall financial health could be a positive sign for long-term investors.

Following the announcement of these results, the market will also keep an eye on the share prices of other insurance companies such as SBI Life Insurance, HDFC Life Insurance, ICICI Life Insurance, and Max Financial Services, alongside LIC. The growth shown by LIC in its premium income and profit reaffirms its strong hold in the insurance sector.