On April 24, HDFC Life Insurance Company shares rose to a one-year peak of more than 8% after the Reserve Bank of India allowed raising the HDFC Life and HDFC ERGO stake to 50% following the merger of HDFC and HDFC Bank.

The stock gained 8.2%, the biggest since April 4, 2022, to a high of Rs 554.60 on the BSE. At 9.35 am, the stock traded at Rs 545, up 6% from the previous close.

According to Emkay and Nuvama Research, the RBI’s decision to hold more than 50% stake by HDFC twins in insurance entities is a momentous boost for HDFC Life. The theoretical limit is 100%. This decision will result in 2 major benefits for HDFC Life.

Firstly, HDFC Life will be a direct subsidiary of HDFC Bank, aiding a potential improvement in its 50% share in the HDFC Bank channel and an increase in margins amid an expected reduction in distribution cost.       

Secondly, the concern about the 19% stake sale by HDFC-HDFC Bank currently holds a 48.65% stake in HDFC Life. RBI directed them to keep their stake below 30%, which is now eliminated, and it is confirmed that HDFC-HDFC Bank will acquire a secondary 1.35% stake before the merger completion.

Brokerage firm Motilal Oswal Securities presumes the RBI’s decision to eliminate an essential projection on HDFC Life could allow an additional buying of Rs 2,200 crore into HDFC Life. The investments made by HDFC Limited can endure being calculated as investments of HDFC Bank. It thoroughly aligns the Bank’s interests and the life insurance arm, boosting HDFC Life’s distribution network and potential margins.