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    HDFC Life may get more muscle in MSCI Index, stock surges

    Synopsis

    However, majority of the analysts expect limited upside for the stock citing its expensive valuations.

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    In May it sold 1.78 per cent stake for approximately Rs 1,400 crore.

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    Mumbai: Shares of HDFC Life Insurance rose 3.6 per cent to Rs 632.45 despite the 5 per cent stake sale by its co-promoter UK’s Standard Life as analysts feel the increase in public holding would help the stock to raise its weightage in the MSCI index, implying more fund flows from foreign institutional investors.

    However, majority of the analysts expect limited upside for the stock citing its expensive valuations.

    “HDFC Life is currently trading at 4.6 times FY21 estimated P/EV (price to embedded value) versus the peer average of 2.6x, and the premium quality of its franchise, in terms of strong growth and sustained margin expansion, is already priced into the stock,” said Avinash Singh, analyst, SBICAP Securities.

    HDFC Life shares have rallied 63 per cent since the beginning of the year. In August, MSCI, a leading provider of research-based indexes and analytics, added HDFC Life Insurance Company to its Global Standard Index. Increase in public shareholding will help the stock to raise its weightage in MSCI index.

    “Although, recent run-up in valuations of 4.0 times September FY2022 enterprise value has left little room for large upside, while risk on margin coming off if growth slows in H2 FY2020,” said Pritesh Bumb, analyst, Prabhudas Lilladher.
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    UK’s Standard Life has sold 5 per cent stake in HDFC Life Insurance through block deal on Wednesday to raise about Rs 5,752 crore. Shares were sold at Rs 575 apiece on BSE. Some of the buyers includes Capital Group, New World Fund Inc, Euro Pacific Growth Fund.

    At the end of the September quarter, Standard Life held 19.69 per cent stake in HDFC Life. Housing Development Finance Corporation (HDFC) and Standard Life are the joint venture partner in HDFC Life Insurance, with the former holding 51.47 per cent stake.

    Since the beginning of the year, Standard Life has sold about 14.5 per cent stake in four different transactions. In March, UK’s insurance form sold 4.93 per cent stake in HDFC Life to raise about Rs 3,600 crore.

    In May it sold 1.78 per cent stake for approximately Rs 1,400 crore. Again in August, Standard Life had sold 3.2 per cent in HDFC Life via a block deal to raise about Rs 3.145 crore.

    Standard Life early this year said it was reducing its stake to help the Indian insurer meet the minimum public shareholding norms of the Securities and Exchange Board of India for listed companies. According to the listing agreement, it is required to hold a stake of at least 9 per cent in HDFC Life till March 2021 to meet lock-in requirements.
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