Shares of insurance companies witnessed a decline of up to 6% in Monday’s intraday trade on the Bombay Stock Exchange (BSE) after the GST Council deferred its decision on revising Goods and Services Tax (GST) rates for insurance premiums. The deferral leaves GST on life and health insurance unchanged for now.
Key Updates from the GST Council
1. Deferred Decisions:
- The much-anticipated rate rationalization of 148 items, including life and health insurance premiums, was postponed.
- The Group of Ministers (GoM), responsible for the reports, requires additional inputs from the Insurance Regulatory and Development Authority of India (IRDAI) before finalizing their recommendations.
2. Government Statement: During the post-meeting briefing, Union Finance Minister Nirmala Sitharaman clarified that no final decision has been reached, stating, “The report on rate rationalization is not final. Inputs from IRDAI are awaited before submission to the Council for discussion.”
Market Impact
1. Major Declines:
- New India Assurance Company fell 6% to Rs 200.80.
- General Insurance Corporation of India (GIC) dropped 3% to Rs 485.55.
- Other stocks, including ICICI Prudential Life Insurance, HDFC Life Insurance, SBI Life Insurance, and Star Health Insurance, recorded declines ranging from 1% to 2%.
2. Stock Performance:
- Over the past month, stocks like ICICI Prudential, HDFC Life, and SBI Life have declined by 6% to 10%, compared to a 2% dip in the BSE Sensex.
3. Context:
- On Friday, GIC had surged 14% to Rs 502.75, while New India Assurance had gained 4% to Rs 214.15, indicating volatility in the market due to GST-related news.
Industry Outlook
1. Sector Challenges:
- Low insurance penetration in India compared to global benchmarks remains a concern.
- Uncertainty over GST revisions adds short-term pressure on insurance companies, affecting investor confidence.
2. Growth Drivers:
- Expanding per capita income and a large protection gap offer substantial growth potential for the insurance sector in the long term.
- Credit protection products, still in their nascent stage, are poised for exponential growth as retail loan penetration increases.
3. Analysts’ View:
- ICICI Securities noted the potential for strong growth but cautioned about risks related to regulatory changes and competitive pressures.
- Companies with a robust mix of products, services, and distribution networks are expected to capitalize on the evolving market dynamics.
Conclusion
The deferral of the GST Council’s decision has introduced ambiguity, keeping insurance stocks under pressure in the short term. However, the sector’s long-term growth potential remains robust, driven by a widening protection gap, rising incomes, and untapped markets. While immediate regulatory clarity is awaited, analysts suggest that strategically positioned insurers are well-poised to benefit from India’s underpenetrated insurance landscape.
The question remains: Will the GST revisions propel growth or exacerbate short-term challenges for the insurance industry?
