“Markets are moving towards financial sector stocks that are not lender-based, such as insurers and asset managers, as they do not carry balance sheet risk and offer growth opportunities,” analysts said. ICICI Securities. Even those from Kotak Institutional Equities believe that stocks in the insurance segments can be better placed than the loans segment in the financial services sector. The fact that these companies tend towards the theme of financialization – which aims to improve customer savings – positions them better than the banks, especially in times of slowing economic growth. In addition, before the market collapsed in March, these stocks were not very appreciated because of their costly valuation. With a 30-37% correction in stock prices over the past three months, valuation concerns have also been addressed, making insurance and AMC stocks attractive to investors.
However, even if these stocks offer potential, there are certain downside risks that investors should be aware of. On the one hand, while reinsurers have started to increase their rates, insurance companies may also increase their prices for customers. However, under current conditions, the extent to which price increases can be implemented is questionable.
“The weak sentiment of retailers, on the back of Covid-19, and the focus on growing the high-yield protection segment (personal protection and credit life insurance), will likely deter insurance companies from ‘Significantly raise protection prices over the next few quarters,’ said analysts at Kotak Institutional Equities.
Brokerage also warns of a potential drop in persistence ratios due to a change in consumer preferences and high unit buy-back of insurance policies. Therefore, there may be immediate pressure on the prices of insurance companies. For AMCs, one must be attentive to redemptions and the persistence of systemic investment plans.
