On Tuesday, traders reduced their bullish positions on insurance stocks following the GST Council decision on Monday to keep GST rates on insurance products unchanged. HDFC Life shares fell 4.4% to ₹703.40, ICICI Prudential Life dropped 1.5% to ₹746.50, and ICICI Lombard General Insurance declined 2.7% to ₹2,172.
‘There was profit-taking because the market had anticipated a GST reduction on term and health insurance during Monday’s GST Council meeting,’ noted Rahul Malani, equity research analyst at Sharekhan. ‘The proposal was deferred, which was unexpected.’
Currently, an 18% GST is applied to insurance products, with the industry advocating for a reduction to 12%. The finance minister has announced the creation of a group of ministers (GoM) to review the proposal, with findings expected before the next meeting in November.
Analysts also pointed to disappointing industry growth figures for August as a factor in the stock decline. ‘The drop in life insurance stocks on Tuesday was driven by the growth moderation from 25% in July to 13% in August,’ said Deepak Jasani, head of retail research at HDFC Securities. ‘While HDFC Life and SBI Life showed significant slowdowns, Max Life and ICICI Prudential performed better.’
Jasani noted that insurance stocks have surged since June, and he expects some consolidation in the near term. Shares of LIC, ICICI Lombard, GIC Re, Max Financial Services, and SBI Life Insurance have risen between 19% and 51% this year, outperforming the broader Nifty index, which has gained 15.2%.
Some analysts believe these stocks won’t fall significantly from current levels. ‘These companies have experienced strong business premium growth, around 20% this year and 22% in August, suggesting continued strength in the insurance sector,’ said Pankaj Pandey, head of fundamental research at ICICI Direct. ‘Therefore, we don’t anticipate sharp declines in these stocks.’ In the medium term, market attention will focus on improved insurance coverage and higher amounts insured, which could further drive stock performance, added Jasani.
Pandey also expressed a favorable outlook on Star Health and Allied Insurance, highlighting it as the only standalone general insurance company without a motor insurance component and likely to benefit from any tax cuts. HDFC Securities maintains an ‘add’ rating for ICICI Prudential and Max Financial Services and a ‘buy’ rating for SBI Life Insurance.
The GST Council’s decision to maintain the current 18% GST on insurance products has led to a downturn in insurance stocks, reflecting market disappointment and profit-taking. Analysts anticipate a period of consolidation in the insurance sector, given the deferral of a much-anticipated GST reduction. Despite the short-term volatility, the sector’s growth potential remains robust, driven by increasing insurance coverage and strong premium growth.
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