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Insurance sector: Is it an opportunity or is the show over?

Going forward, increasing life expectancy, favorable savings and greater employment in the private sector is expected to fuel the demand for pension plans, which will act as a catalyst for this sector.
Nov 7, 2019 / 10:17 AM IST
 
 
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Gaurav Garg

Insurance is emerging as the most promising sector and has outperformed all other indices and sectors. Life insurance stocks have created wealth for investors in recent years.

The insurance industry is very critical for any country’s economic development, as it provides security in the event of an unforeseen, loss-causing incident. The inflow provided by users of insurance policies provide these companies with long-term capital as the company can stay assured about constant payments for the given period.

As a result of this, the fund collected is used for long term projects including infrastructure projects which provide a push which is very critical for economic development.

LIC being a giant in the sector has played a vital role, but the market share of private sector players has also increased over the years. Other listed life insurance companies including HDFC Standard Life, SBI Life, and ICICI Prudential Life Insurance have performed very well and given YTD return of more than 60 percent.

Insurance is the only major sector that witnessed a net inflow of FPI equity investment in the last 10 months of the current calendar year. FPIs made a net investment of Rs 24,714 crore in the January-October period. This shows confidence and interest in FPI's for the sector.

The government too favored the sector as Foreign Direct Investment (FDI) limit for the insurance sector increased from 26 percent to 49 percent along with flagship schemes that have been launched by the government to boost the insurance sector that include Pradhan Mantri Suraksha Bima Yojana, Pradhan Mantri Jeevan Jyoti Bima Yojana, and Ayushman Bharat Yojna.

A growing India coupled with strong growth in the automobile industry also left a positive impact on the general insurance sector.

Going forward, increasing life expectancy, favorable savings and greater employment in the private sector is expected to fuel the demand for pension plans, which will act as a catalyst for this sector.

Robust GDP expansion, coupled with current low insurance penetration, should further support double-digit growth for the non-life sector over the next five years. Going forward major players in the sector will continue to perform well based on its AUM and operational margins.

(The author is Head of Research at CapitalVia Global Research Limited- Investment Advisor.)

Disclaimer: The views and investment tips expressed by the investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Moneycontrol Contributor
first published: Nov 7, 2019 10:17 am

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