Ahead of LIC IPO, investors are selling insurance company stocks

• Recently, insurance companies have been in the news for increasing the cost of policy premiums due to rising claims by policyholders.
• Apparently, even after increasing the premium costs, such companies are reporting a slowdown in profitability.
• Analysts say most insurance stocks are expensive and hence some profit booking is happening ahead of the LIC IPO as investors look for value investment.

Several general and life insurance companies have increased premiums on insurance policies due to the rising number of claims due to the pandemic.

However, despite rising premium costs, things have not changed for them as the stress on their financial performance continues.

While insurance companies have increased premium on policies, the latest quarter results show they have apparently not sold more policies, according to Sanjiv Bhasin, executive vice president, markets and corporate affairs at India Infoline.

He added that since most of the insurance companies’ stock are expensive, investors are willing to sell them ahead of the upcoming mega initial public offering (IPO) of Life Insurance Corporation (LIC) and buy value stocks of its competitors.

Value stocks refers to shares of the company that are currently trading below what they are really worth and will thus provide a superior return.

“In a time when markets are little pessimistic on growth, these (insurance companies) stocks are expensive stocks so there has been profit booking in them as they are mostly owned by FIIs [foreign institutional investors] and those people have taken home money because of rising yield,” said Bhasin.

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