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This decision comes against the backdrop of divergent trends in the growth trajectories of the two companies, with ICICI Prudential Life recently exhibiting high growth while SBI Life facing slower growth.
However, Investic anticipates a reversal of these trends starting in January 2025.
Investic’s strategy is built on three primary arguments — favourable based effect shift, growth dependency on equity markets and valuation premium.
A fast pair trade is a strategy where an investor buys one stock and sells another simultaneously to profit from changes in their price relationship. This approach is part of pairs trading, a method that focuses on identifying pairs of stocks that are moving differently from their usual pattern, using statistical analysis rather than relying on market direction.
The financial services firm said that favourable base effect that has supported ICICI Prudential Life’s growth is expected to fade in January 2025. Conversely, SBI Life will begin to benefit from a favourable base effect, likely boosting its growth trajectory in the months ahead.
It further stated that ICICI Prudential Life’s incremental growth is increasingly tied to equity markets, given its higher share of equity in its Unit Linked Insurance Plan (ULIP) Assets Under Management (AUM). This dependency introduces heightened vulnerability to market fluctuations, which could limit its near-term growth prospects.
ICICI Prudential Life is currently trading at a premium to SBI Life in terms of its Price to Value of New Business (P/VNB) multiple. Given the high sensitivity of P/VNB multiples to future growth expectations, Investic believes the market has not fully accounted for the impending growth reversal.
The pair trade or long-short strategy offers a unique opportunity for investors to capitalise on the anticipated shift in growth momentum between the two companies.
Shares of SBI Life were trading 0.72 % higher at ₹1,480, while that of ICICI Pru Life were quoting 0.23% lower at ₹634.75 on the BSE around 10.25 am.
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