Analysts turn positive on financialisation theme

Priya Kansara Mumbai | Updated on March 08, 2018 Published on March 08, 2018

Post cash ban, scores of insurance, AMC, BSE, CDSL hit market

Demonetisation gave birth to a new term/theme in 2017: financialisation. Demonetisation was followed by a string of IPOs in 2017 from companies benefiting from the structural change in the investment pattern of Indian citizens. While gold and property lost sheen, equities as a class got an additional boost, leading to robust inflows into mutual funds.

As a result, players from related categories, such as life insurance, asset management and those related to equity markets tapped the primary market. However, not all did well on their debut either due to the high valuation during the IPO (labelling as a new concept or PE investors wanting to exit) or the subdued mood in markets around the issue or listing date.

Mixed show

Out of eight such listings in 2017, only the stocks of ICICI Lombard, HDFC Standard Life and CDSL are trading substantially above their issue price while Reliance Nippon Life Asset Management Company is trading marginally above the issue price.

Out of the underperformers, while the stocks of General Insurance and New India Assurance are still badly bruised, BSE and SBI Life Insurance are 5-6 per cent lower compared to their issue price.

The bad performance of stocks is largely attributed to a recent market correction, especially mid- and small-caps stocks, and has nothing to do with fundamentals.

Improved show

In fact, most companies have reported an improved financial performance year-on-year in the nine months ended December 2017 especially on the profitability front, according to data provided by Capitaline. Growth rates till date in FY18 have been better than in FY17 as well.

Except GIC and BSE, other stocks have gained in the range of 3-40 per cent from their 52-week lows.

Despite a high valuation 20-80 times the FY19 estimated earnings, many of the stocks are unlikely to correct from the current levels, said analysts. “The profitability of listed life insurers is the best among all sub-sectors in India financials, and with further profitability levers and the robust growth outlook, valuations are unlikely to get cheaper in the near-term, in our view,” said Nomura.

Besides Nomura, brokerages such as HDFC Securities, JM Financial and Axis Direct have also expressed their positive view on the life insurance sector or players.

The outlook is also positive for companies such as BSE and CDSL as analysts believe they will continue to benefit not only due to the financialisation theme playing out in India but also because of the lack of other investment avenues.

Published on March 08, 2018
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