SBI Life and HDFC Life were among the most downgraded stocks in the last quarter, reflecting growing concerns over their future growth prospects. Analysts cite a range of challenges, including new surrender regulations, a weakening banca channel, and increasing competition, all of which have contributed to slower growth.
According to Moneycontrol's December analyst call tracker, the number of "buy" calls for SBI Life fell to 33 from 34, while "hold" calls increased to three from zero. "Sell" ratings remained unchanged at zero. Over the October-December period, SBI Life's share price dropped by as much as 24 percent.
Similarly, HDFC Life saw a reduction in "buy" ratings, from 28 to 27, with "hold" ratings rising to six from four. The company’s shares lost 14 percent during the same period.
What's making the Street nervous?
The impact of new surrender regulations has raised red flags for life insurers, particularly in terms of profitability. The new norms, effective from October 1, 2024, require insurers to pay out more to lapsing policyholders. Analysts at Emkay Global warned that these factors will continue to weigh on margins for life insurers, including SBI Life and HDFC Life, in the coming quarters.
On top of this, there are other regulatory issues to watch. The debate over whether GST rate for life insurance premiums at 18 percent is justified has raged on like a wildfire for the past few months. The industry is seeking a reduction in this rate as it could make life insurance products more affordable and accessible for buyers.
Another major concern is potential changes to bancassurance regulations, which govern the partnership between banks and insurers. Reports suggest that the Insurance Regulatory and Development Authority of India (IRDAI) may impose a cap on the share of bancassurance business that an insurer can get from its parent bank, limiting it to 50 percent.
This is worrying for both SBI Life and HDFC Life, as their parent banks contribute 85-95 percent of their bancassurance business. If this change is implemented, it could hurt growth and be a major challenge for both insurers.
International brokerages, including Morgan Stanley and Bernstein, have warned that this proposal would be negative for APE growth and could face strong opposition from the industry. However, if it is enacted, it could prove difficult to implement, stifling growth and presenting a significant challenge for both SBI Life and HDFC Life moving forward.
Both SBI Life and HDFC Life also faced a decline in their new business premiums (NBP) in December 2024. While SBI Life saw a 15.2 percent YoY increase in NBP to Rs 5,307.98 crore, HDFC Life experienced a 4.55 percent YoY drop to Rs 2,713.49 crore. This decline in business further underscores the challenges both insurers are facing.
Given the ongoing regulatory uncertainties and market challenges, analysts at Elara Securities expect the stocks to remain under pressure until more clarity emerges, especially after the Union Budget.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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