Banking index has slumped more than any of the other indexes so far. Huge sell-offs were seen in the banks with share value slipping over 30 percent including large private banks. Insurance companies are the only ones who bucked this trend, and saw robust gains of over 50 percent in this month so far.
With heightened risk aversion and deepening liquidity crisis due to the national lockdown, market participants pulled out their investment from the banks and reinvested their sum of money in insurance and AMC stocks.
There was some correction in this space during the market meltdown in March due to their expensive valuations. However, the stocks soon regained their ground and rallied from their lows, like New India Assurance jumped 63 percent from its lows this month.
Meanwhile, life insurers like SBI Life, ICICI Life and HDFC Life surged 24 percent, 54 percent and 29 percent respectively, from their lows in March.
ICICI Securities said that markets are moving towards non-lender based financial sector stocks, such as insurers and asset managers, as they do not carry asset risk and offer growth opportunities.
Mirroring the same statement, Kotak Institutional Equities in its noted that stocks in the insurance segment are better placed than the lending segment. Since these companies work towards the financialisation theme- which improves customer's savings better than the banks even during economic slowdown, life insurers look attractive for investment.
However, the brokerage also warned that insurance stocks are currently at some risk due to the potential fall in persistency ratios because of the shift of consumer preferences. Therefore, there may be some immediate pressure on the pricing for insurance companies.
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