On Tuesday, insurance company stocks were back in the news as the recent reduction to the GST rate made people feel better about the market as a whole. Insurance stocks fell at first as people took profits, but then they rose again. HDFC Life and ICICI Prudential Life both rose 2%, and ICICI Lombard General Insurance rose almost 3% during the day.
Broader Market Cheers GST Reform
The excitement around GST cuts was visible across the board. The Nifty jumped more than 200 points and crossed 24,900, while the Bank Nifty jumped more than 300 points. There was also a lot of interest in buying midcap and smallcap stocks.
- Auto stocks led the rally with the Nifty Auto Index jumping more than 2%. M&M futures surged over 6%, becoming the day’s top gainer, while Eicher Motors advanced 3%.
- Consumer-focused stocks such as fashion, footwear, and textiles also benefited. Relaxo, Bata, and Campus Activewear climbed 5-8%, while Trent and Aditya Birla Fashion saw solid gains.
Why Insurance Stocks Are Rising
The government’s decision to cut GST has direct implications for insurance products:
- Life, health, and savings policies will now attract zero GST, making them more affordable for customers.
- Third-party motor insurance GST has been slashed from 12% to 5%, providing relief to vehicle owners.
This policy shift is expected to improve insurance penetration in India, particularly in the retail segment where affordability has often been a barrier.
Brokerages Weigh In
Global brokerages remain bullish on insurance stocks despite near-term uncertainties.
- Morgan Stanley noted that while GST reform is positive for customers, insurance companies still face uncertainty over input tax credit (ITC). Without ITC relief, insurers may be forced to raise premiums, which could impact profitability.
- CLSA highlighted that the removal of GST on life and health policies is a clear positive. However, insurers may absorb some of the tax burden due to ITC restrictions, potentially leading to a 1-4% rise in premium costs.
- The brokerage added that SBI Life, with its lower operating expense ratio, may see limited margin impact, while peers with higher cost structures might face greater pressure.
Outlook for Investors
The GST cuts are good for the insurance business in the long run, but the short-term picture depends on how companies deal with the ITC difficulty. Analysts think that making policies more affordable will lead to more people using them, which will be good for insurers in the long run. Investors are weighing the effects of stronger demand prospects and cost pressures on insurance equities, which are likely to stay volatile for now but with an upward bias.
Disclaimer: This post is not meant to be taken as advice. There are hazards involved in investing in the stock market. Talk to your financial advisor before you invest.
