Warren Buffett, the CEO of Berkshire Hathaway, has always been an advocate of buying what he understands, and the insurance business is one that he knows intimately. So why can’t Indian investors find value in the industry if Warren Buffett does?
Warren Buffett, the CEO of Berkshire Hathaway, was sitting on a $147 billion cash pile in February of this year and couldn’t identify any equities worth buying. However, a month later, when stock markets throughout the world were falling due to conflict and increasing inflation, he announced his biggest acquisition since 2016: Berkshire Hathaway would purchase insurance business Alleghany for $11.6 billion.
In India, on the other hand, the insurance sector has only lost money this year due to a shortage of customers on Dalal Street. Insurance companies have lost up to 16 percent of their value year to date, compared to a 1% increase in the Nifty.
The forthcoming initial public offering (IPO) of the Life Insurance Corporation is one aspect that some experts attribute to its under-performance (LIC). It has no impact on the basis of private participants, though. Life insurance companies have underperformed the overall market by a significant margin in the previous six months, which has been perplexing. Even if the recent weakness in monthly new business volumes is taken into consideration, the changes in fundamentals will not be sufficient to explain this.
Despite downward revisions to estimates due to a drop in new business volumes, Emkay Global believes there is a significant upside in life insurance stocks and reiterates its bullish stance, arguing that current prices appear to be pricing in too many near-term negatives while ignoring the sector’s growth potential and the franchise strength of top private life insurers.
Morgan Stanley analysts have shared a similar stance, stating that they are “going all out on insurers.” Life insurers have reported solid results, according to the broker, but a bad narrative is driving share price declines. The risk-reward ratio has increased even further, and it is still the broker’s “highly favored” area.
