Moderate expectations on market returns; insurance still a relative bet: A Balasubramanian

Economic Times

2 days ago

Tired of too many ads?
Remove Ads
Also Read: A Bala explains how dialing up risk and taking a leap of faith paid off
Tired of too many ads?
Remove Ads
MD & CEO,, says insurance is getting the act together and therefore trying to drive the whole mind recall which has to come from buying a policy or making investment in SIP. It will increase the penetrations. Deep commitment is coming and new product offerings are coming from insurance companies, increasing the size of the pie. Therefore, having seen the consolidation, it is a more of a relative bet.: The insurance sector has gone through consolidation and in the last two-three years, these sectors have remained underperformers. At the same time, like the focus that is coming in the case of mutual fund business, the insurance industry was also underpenetrated and increased focus is coming in both from the government and the regulators that every citizen of the country should have one insurance.As we keep saying that har ghar mein ek SIP hona chahiye (every household should have a SIP), in the mutual fund side, in the same way, insurance is getting the act together and therefore trying to drive the whole mind recall which has to come from buying a policy or making investment in SIP. It will increase the penetrations. Deep commitment is coming and new product offerings are coming from insurance companies, increasing the size of the pie.Therefore, having seen the consolidation, it is a more of a relative bet. As we keep saying from public sector banks to the private sector; private sector to public sector; from a large-sized NBFC to the mid-sized NBFCs, the same way mutual funds asset management companies in the listed space and insurance companies as an alternative have been coming in. It is a more of a relative value bet.Largely it is in the life insurance business. That is where the deeper penetration is coming. Anyways in the case of health insurance, a limited number of players are there.This remains a sector which we cannot dislike.One is benchmarking. Banking and finance is a proxy with the economy. If you want to measure the success of the economy, how the banking industry functions will tell you how the economy is doing. So, the banking and financial services industry is a provider of raw material for everyone in the country. Second is they are one driver of growth as we keep saying. As the credit offtake starts picking up, we will probably see the equity market also reflecting in terms of either Sensex – not only because the index weight of the financial industry is pretty large, it is also because of the impact that it creates on the entire ecosystem.So, since they are a provider of raw material, a provider of money, the interest cost is coming down, and therefore deposit cost is coming down. As they increasingly lend more, the ROE and ROA for the banking industry will be pretty large.Data points cannot be ignored and that this is a fact. Is it a trend which is going to be everlasting or is it a trend which is going to change? The step that is being taken to correct this trend is also equally important. When the Reserve Bank of India governor took charge, his single point focus was growth. The moment growth is becoming a high priority, all the steps that are being taken, whether it is a cutting rate or advancing the rate cut well ahead of the market expectations, and then taking care of the ease of doing business when it comes to lending provisioning and infrastructure financing.So, the whole ecosystem that is now being built to support the growth. The way I see it, the market does not look at the short term, the market always looks one year down the line. As we are in 2025, I think any analyst will start looking at 2026. There are a lot of moving parts. While the macro variable numbers could be true, if you look at the trend in general, for that to change, the steps that are being taken to support the trend to come back, are a lot more positive.Therefore, the market will start looking at '26 earnings. Maybe one has to, of course, remember the fact that the Indian market has been trading at a high PE multiples because of the high growth expectation that is coming on in India. Therefore, there is a high probability that return expectations versus what actually comes in could be relatively lower. One may expect 16-17% or 20% return. Against that, we may end up getting about a 10-12% kind of return but that is where one has to keep the expectations somewhat moderate.