Momentum Pick: HDFC Life in overbought zone; should you buy after 44% rally?

When HDFC Life Insurance Company hit its 52-week high of Rs 659.95 on the NSE on Wednesday, June 21, the stock posted a 44% jump from its 52-week low of Rs 457.80. The largely one way rally has been followed by corrections in three consecutive trading sessions. As the stock trades in an overbought zone and may witness more corrections, investors should not miss the opportunity to accumulate this stock on declines.

HDFC Life has given returns of over 12% in the past 12 months underperforming the Nifty50 which has given over 20% returns during this period.

Momentum indicators RSI and MFI on Friday suggest that the stock is trading in an overbought zone. The RSI stood at 65.8 and MFI at 75.9 according to Trendlyne data. A number below 30 indicates that a stock is trading in an oversold territory while above 70 suggests that it is overbought.


Rajesh Palviya of Axis Securities | Accumulate | Target: Rs 700 | Stop Loss: 570 | Upside: 11%

Analyst Rajesh Palviya, who is Senior Vice President - Technical and Derivatives Research at Axis Securities said that the stock has observed a sharp rally from 460 levels, along with huge volumes on the weekly timeframe. Currently, the prices are well placed above their 20, 50, 100 and 200-day SMA, which reconfirms bullish sentiments.

“With the current week's close, the stock has confirmed a "multiple resistance" breakout at 616 levels on a closing basis, indicating a trend change. The weekly and monthly strength indicator RSI is in bullish terrain, which signals rising strength on long-term charts,” Palviya said.

The immediate short-term support zone is seen to be around Rs 600 - Rs 570 levels, whereas the resistance zone is between Rs 660 and Rs 700, the Axis Securities analyst said, adding that the positive divergence on weekly RSI signifies buying support at lower levels.

“The short to medium term remains bullish; hence any short-term corrections towards the support zone remain an accumulation opportunity for traders and investors,” Palviya recommended.

Investors with a very short term view should be wary of the volatility as the counter has displayed relatively strong ups and downs. It has traded with a 1-year beta of 1.1, the Trendlyne data said.

People who have a longer term view can also consider buying this stock as top brokerages including Jefferies and Kotak Institutional Equities have taken a ‘Buy’ stance on the counter. Kotak remains overweight on it, estimating a 28% upside. It has revised its targets upwards from Rs 725 to Rs 820.

– Jefferies: Buy | Target Rs 770 | Upside: 20%

– Kotak: Buy | Target: Rs 820 | Upside 20%

"HDFC Life has guided for faster-than-industry growth in the medium term, driving mid-to-high teen VNB growth. The company is preparing for a new regime of lower tax benefits (or no tax benefits) and shift to lower tickets, in line with the regulatory objectives," a Kotak note said.

"We expect HDFC Life to deliver healthy (16%, ex-one off, 7% overall APE) growth in FY2024E, followed by a stable trajectory over the medium term. Remains our favored life insurance picks," the domestic brokerage said.

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(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)