| Summary of Contents SECTOR UPDATE Insurance Operating environment improves, retain positive stance Key points - After passing through a rough patch (including a painful capital infusion cycle and adverse regulations), the insurance sector is set for a strong revival in business on the back of an uptick in the economy, improvement in the savings rate and upturn in the capital market. With the insurance companies turning more cost and capital efficient, we believe the improving trend in the financial performance (and profitability) of the leading private insurance companies would sustain going ahead.
- With supportive business conditions and favourable policy measures (like the easing of FDI norms), we expect many insurance companies to tap the capital market to meet part of their fresh capital infusion needs (required to support business growth) in the next few years. Consequently, we expect a lot of investor interest in the insurance sector in the coming years. Globally, in most large economies the leading insurance companies have a reasonably high weightage in the benchmark equities indices. Thus, we are structurally bullish on the insurance sector.
- In India, there is no direct listed insurance play available. However, a large part of the value in Max India and Bajaj Finserv can be attributed to their insurance subsidiaries and are the preferred vehicle to gain exposure to this sunrise sector. We have a Buy recommendation on Max India (target price: Rs376) and Bajaj Finserv (target price: Rs1,075). Among the indirect insurance plays, we prefer ICICI Bank (the highest market share among the private insurance companies).
Key concerns:
The Direct Tax Code bill (likely to be reviewed by the new government) or change in regulations could affect the profitability of insurers.
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