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Mar-19: Insurance continues strong growth; MF Equity Flows rebound
Private life insurers’ individual NBPs grew 21% YoY to Rs 84bn 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 Rs 86bn in Mar19 i.e. 15% below FY19 monthly average of Rs 99bn and FY19 total of Rs 1.19tn.
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 upfronting of payouts.
While we cannot attribute the outperformance of insurance solely to the above reason (as this is also a seasonally strong time for insurance), we do believe that incongruous commission structures impact distributor behavior
* Market ADTVs (ex-prop) grew 35.9/20.9% YoY/MoM to Rs 7.7tn 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 as 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 an 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 Rs 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 stressed ADA group is expected to bode well for the company. Our estimates currently fully build in lower cost benefits. We are also increasing our P/E multiple to 26x (vs. 21x) leading to revised TP of Rs 242 (+27.0%).
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. We have a NEUTRAL stance on ISEC with TP of Rs 235 (+4.4%).
* We remain positive on the long term prospects of life insurers, however strong sales growth (+26% p.a) in FY17 an FY18 followed by 21% 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. Group business on the other hand is expected to continue to do well and grow at ~25% YoY.
* Our top pick in the sector is SBILIFE with TP of Rs 776 (+25.8%). CMP of MAXF also adequately builds in risks and offers meaningful upside potential. We have a BUY with TP of RS 619 (+40%)
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