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Nilanjan Dey

Growth of the sector drawing fund managers

Kolkata May 10 The exponential growth of the insurance market, marked by drawn-out valuations, is prompting institutional money managers to focus on stocks of companies that have a more than a little insurance play in them.

Max, Dabur and Exide are some of the mid-cap companies that figure in this set, courtesy their strategic investments in insurance joint ventures, the three specific cases here being Max New York Life, Aviva and ING. A number of other corporate groups - Bajaj Auto being among the bigger ones - are there as well.

The trend is expected to catch on with time, even as insurance companies (all of these are unlisted) move towards the market, aiming at dilution of promoters' stakes.

Jt ventures' progress

However, at one level, fund managers are talking about paying more attention to the progress recorded by the insurance joint ventures, as reflected in the promoters' balance sheets.

On the other side, of course, are some of the impediments, which have also made their way into these deliberations.

The relatively slow progress of financial sector reforms - specifically with regard to FDI for the insurance sector - is particularly cited.

Mr S.N. Lahiri, Senior V-P and Co-Head of Equities, DSP Merrill Lynch MF, refers to Max India as an example. The stock, which figures in DSP ML India T.I.G.E.R. Fund and DSP ML Tax Saver Fund, has lately grown in terms of market capitalisation, a distinct change from what it had in 2004. Max, incidentally, is into healthcare and clinical research.

"The (insurance) sector is expected to become larger in the coming years. The players concerned will gain in terms of network and penetration. The growth recorded by them will add value to their promoters," he said.

The financial services sector itself is well aware of the possibility, according to experts.

Mr Shailendra Bhandari, who heads Centurion Bank of Punjab, said: "The sector, having seen a series of positive developments in recent times, is bracing for more."

CBoP, incidentally, is a close associate of Aviva, the insurance company in which Dabur has a major stake.

ULIPs' growth

The growth of ULIP (unit-linked insurance plan) segment is also being referred to by sources. ULIPs, which have grown at a fast clip in the last few years and come with various asset allocation options, are being pushed by all players, large and small.

The potential is especially strong for the mid-cap corporates that have promoted insurance outfits, it is felt.

Proponents of this school refer to relatively smaller companies like Exide (which has a venture with ING) - and not to the likes of ICICI and HDFC, which have their own insurance arms.

It is also pointed out that the set in question is likely to grow larger in the days ahead, especially with the entry of new groups such as Ranbaxy and Bharti. The former has promoted Religare, which has announced plans to become a large player in the financial services domain, while the latter has readied plans to tie up with Axa. Both Ranbaxy and Bharti are constituents of the main index, Nifty.

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