Business
100% FDI to deepen insurance penetration, not disrupt top players: Nitin Raheja
In a conversation with ET Now, Raheja said the policy change had been in the pipeline for some time and feedback from insurers over the past month has been positive. “So, this was in the works, and most insurance companies—we had met a few of them just in the last one month—are very happy and are welcoming this move,” he said.
He noted that most insurers are already financially strong. “If you really look at most of the insurance companies, all of them are businesses that generate a fair degree of cash. They are well capitalised as such.” As a result, higher FDI limits are likely to help smaller or weaker players that need additional capital support.
“So, when you talk about foreign participation, some of the weaker players would probably benefit from this FDI move because they will need to beef up their capitalisation. But the large players, the large private insurers in the business, are fairly well capitalised and have a huge network. So, it is not going to be easy for anyone to come in and substitute them,” Raheja said.
He added that the bigger structural benefit of the move will be improved reach and awareness. “What it is definitely going to do is drive deeper penetration because, as you see some of them coming in from an education perspective, from a rise in distribution and so on, it is going to lead to more penetration. So, as a country, it is very good. But at a competitive level, I find it difficult to believe, at least in the short term, that any of the top five will be disrupted.”
Raheja also highlighted the advantage of allowing life and general insurance businesses under the same corporate umbrella. “The other element, where general insurance and life insurance are allowed to be done by the same company, is probably going to give some of these companies a big benefit of scale as they go ahead. They can now use the same infrastructure across both businesses in terms of costs and so on. So, that is pretty welcome.”
Overall, he struck a confident note on the sector’s outlook. “In that sense, this is very good for insurance. Any which way, the worst of insurance regulation is behind us, and we are very positive on insurance as a sector as we look ahead.”Beyond insurance, Raheja said consumption continues to be a key theme. “From a sector perspective, when we look across, we clearly see that one big area is consumption, which should continue to do well in our view, especially led by all these measures. This quarter is going to be good. One has to see how this sustains as we go ahead.”
Banking and financials also remain in focus, with a preference for non-banking financial companies (NBFCs). “Within that, we are probably going to see NBFCs do better because there was an expectation that there would be a bottoming out of the rate cycle in this December quarter. But now it looks like we could probably have one more rate cut, and that means the bottoming out of NIMs for banks could be delayed by a quarter or so. So, NBFCs should do well.”
Capital market-linked businesses, particularly asset management companies, are another area of strength. “Capital market players should do well, especially the AMC business, which will continue to perform. It is a structural compounding story that one sees.” He also flagged power, especially transmission and distribution, as an attractive segment.
“At a broader level, this is once again going to be a bottom-up year in the markets, where you are going to see individual stocks do far better than the broader indices,” Raheja said.
Within discretionary consumption, he expects premium segments to remain resilient, but sees faster growth coming from smaller towns and cities. “While at one level premium discretionary will continue to grow, in our view it is an all-weather theme because the consumer in that bucket is less prone to the vagaries of inflation or interest rates. But the larger growth is going to come from tier II and tier III consumption, and that is the bucket where even the government is driving tailwinds.”
On capital goods, Raheja advised patience on private capex-led names but reiterated his preference for power-related plays. “Where there are private capex plays, you can still wait it out because there is no clear signal of that happening. Broadly, within the capital goods space, the two clear areas that we like are related to power—more specifically power transmission. That is the area that we continue to like and where we think there is good room for growth.”
