“Life insurance is a structural opportunity. It has been going through its own pain. The sector growth has not been very strong or optimistic. It is very long term in nature and once you are betting on this, you are betting on the structural dynamic of the country and for the space as a whole to grow.” says Harendra Kumar, MD, Elara Securities.
One of the worries that the market has is that given the size and scale of the LIC IPO, there is going to be a bit of liquidity crunch when it comes to the near term. What impact do you see of this IPO on the markets as a whole?
Prima facie, this puts into context the direction of the disinvestment programme of the government. That is a priority. They were not hung up on the valuations and we have seen significant reduction in the size per se and they are willing to agree on a level of valuation that is palatable to the investors.
So, there is good sense in terms of the way the ministries have gone about this. It puts in course how the government is viewing the fiscal situation and the takeaway could be that we would see an urgency towards the whole disinvestment programme going ahead. The valuation is quite attractive in terms of the private players and that is the case with all the government entities. I think it is priced reasonably.
How do you look at the entire insurance space at this point of time, general as well as life insurance? What is your take on financials? Are you looking at it optimistically?
Yes. I will take the financials question first. The bank index has been underperforming some of the other major indices like tech over the last two years and largely because HDFC Bank and HDFC Ltd had underperformed and even an in the current space.
But now there is a confluence of factors in terms of valuation resurgence of credit growth and the return of general buoyancy in the markets. It is the right time for the banking index to start outperforming some of the other sectoral indices. We would add weight to the banking sector at this given point of time and possibly even advise a small switch from maybe an ICICI Bank and some of the other banks to HDFC Bank at this level because the long-term construct for the bank looks very attractive. Number two, the financialisation story is very strong. Asset managers and brokerages will continue to do well over the next three years.
Lastly, coming to your point on life insurance or general insurance, life insurance is a structural opportunity. It has been going through its own pain. The sector growth has not been very strong or optimistic. It is very long term in nature and once you are betting on this, you are betting on the structural dynamic of the country and for the space as a whole to grow.
One has to keep these things in mind when one invests in life insurance over the long term as well for life insurance over general insurance for us.
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