Private life insurers’ individual NBPs grew 21% y-o-y to Rs 84 bn in Mar-19 (FY19 growth 17%).
By HDFC Securities
Private life insurers’ individual NBPs grew 21% y-o-y to Rs 84 bn in Mar-19 (FY19 growth 17%). After a difficult 3 months, mutual fund equity (ex. arbitrage and ETF) net inflows rebounded to a 4-month high of `86 bn in Mar-19 i.e. 15% below FY19 monthly average of `99 bn and FY19 total of `1.19 tn.
We believe this is an interesting time to track net inflows to these savings options as Sebi has banned upfront commission payouts for MF sales by AMCs while life insurers continue to pay out heavily. Additionally, beginning Apr-19, the revised lower MF TERs also kick in. We believe this further tilts the scale in favour of the insurers, as we expect distributors to push insurance (ULIPs) given the higher commissions and up-fronting of payouts.
While we cannot attribute the outperformance of insurance solely to the above reason, we do believe that incongruous commission structures impact distributor behaviour. Market ADTVs (ex-prop) grew 35.9/20.9% y-o-y/m-o-m to `7.7 tn on back of strong rally in equity markets during Mar-19. While ADTV growth remains robust, cash ADTV (higher yielding) growth continues to remain soft.
Consequentially Cash: F&O mix was 4:96 in Mar-19 against 5:95 in Mar-18. Derivatives ADTV growth continues to outperform total ADTV growth.
We remain positive on the long term prospects of life insurers, however strong sales (NBP) growth (26% p.a) in FY17 and FY18 followed by 17% growth in FY19 for private life insurers has set the companies up with a high base. We expect private insurers Indiv. NBP/APE growth to moderate to 15-18%/8-12% for FY20E.
Our top pick in the sector is SBILIFE with TP of `776 (25.8%). Despite a sharp recovery in markets, we expect near-term lump-sum equity inflows to remain uncertain and volatile given impending election results. Flows to SIPs are expected to support overall equity inflows. We have upgraded RNAM as we believe exit of the ADA group is expected to bode well for the company. The financial performance of the sector shall continue to remain under stress as traditional brokers with credible names like Axis Securities and Angel Broking have moved to fixed/subscription based business models. We believe this can lead to further decline in yields.