SBI Life Top Pick As Bernstein Sees Upside For Life Insurers

Bernstein see's SBI Life current valuations as modest with 5–15% long-term profit growth factored in for stocks.

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Valuation support for key players in the life insurance sector has spelt an upside, with SBI Life Insurance Co. emerging top pick among life insurance stocks along with HDFC Life Insurance Co. and Max Financial Services Ltd. for Sanford C Bernstein’s Manas Agrawal.

Talking to NDTV Profit, Agrawal, who is vice president and research analyst at Sanford C Bernstein, said life insurers have been laggards from a long-term perspective, but things are looking up now. “The top pick is SBI Life. I also like HDFC Life and Max Financial. These stocks have been running up in the last few months and weeks. But, if you take a longer term view, they are laggards because of regulatory issues that have plagued the industry over the last two or three years. There is valuation support and known regulatory issues are behind us. So, there is upside in my mind for life insurers,” he said.

In its latest report titled, ‘India Portfolio: 10 Bottom-up ideas’, released on Aug. 29, Bernstein said, “SBI Life benefits from rising savings and financialisation as households move from traditional instruments like gold and real estate to high-return-yielding assets.”

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The global financial service firm included SBI Life in its portfolio, saying that current valuations are modest with 5–15% long-term profit growth factored in for stocks. “SBI Life, the largest private sector insurer with a steadily increasing market share and a partnership with SBI, provides a distribution edge. It, thus, becomes a good contender for any large-cap portfolio,” the report said.

The new additions to the 10 bottom-up ideas in Bernstein India model portfolio include REC Ltd., SBI Life and DMart. The brokerage removed Bharti Airtel Ltd., Axis Bank Ltd. and Adani Ports and Special Economic Zone Ltd. from its portfolio, while retaining HDFC Bank Ltd., ICICI Bank Ltd., Infosys Ltd., Larsen & Toubro Ltd., NTPC Ltd. and Reliance Industries Ltd.

Agrawal said Life Insurance Corp. of India, which is the largest insurer, needs to have conviction to improve its product-level margins and change its growth trajectory. While the management has been trying to change the product mix and improve the margin profile, this may not change the growth trajectory.

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“They are going to face product-level margin pressure. I would like to see more conviction on improvement in product-level margins. The other is, how you change the growth trajectory. Those are the two points I am not convinced about,” Agrawal opined. 

Agrawal expressed that among distributors, PB Fintech, the parent company of Policybazaar, had a "fantastic" business model. “The growth story has been fantastic and they are going to deliver very strong growth on the business volume or GMV, which will translate into revenue as well. Economics on the margin side are improving. Difficult to wrap your head around mid-term upside, long-term I think the business will make money but you will need to be patient,” he said.

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