Asset management. While active equity has witnessed net outflows of Rs 566.9bn in FY21TD with 3QFY21 accounting for Rs 436.0bn, Nifty-50/Nifty-200 are up 24.3/23.6% just in 3QFY21; this has driven industry equity AUM higher by 16.4% QoQ. Debt schemes continued to receive inflows with 3QFY21 witnessing Rs 1.45tn vs. Rs 818bn in 2QFY21. Higher equity prices are expected to boost treasury profits. Commentary from management around flows and market share will be key. Our top pick in the space is UTIAM. We maintain BUY rating with a TP of Rs 650 (i.e. 20.6x Sep-22E NOPLAT + cash and investments).
Broking. Despite introducing the first phase of upfront peak margin requirement for cash and derivatives, ADTV for cash increased 57.1/-0.8% YoY/QoQ, while derivatives saw a growth of 77.6/38.1%. We expect family-owned smaller scale brokers to cede market share to more organized larger competitors. Strong activity along with market share gain is expected to boost broking revenues. Distribution income is expected to improve as industry active equity AUM grew 8.1/16.4% YoY/QoQ. Commentary around new customer acquisition, new pricing plans, and the impact of regulatory changes will be key to watch. ISEC: We expect ISEC to deliver APAT growth of 77.1/-12.6 % YoY/QoQ. We retain ADD with a TP of Rs 560 (i.e. 23x Sep-22E EPS).
General Insurance. GDPI (ex. crop) growth for the sector improved in the first 2 months of 3QFY21 by +6.3/7.7% YoY/QoQ. The two large segments- Health/Motor grew 3.8/4.8% YoY. We expect a slight deterioration in loss ratios in segments other than health as business activity resumed. We expect a slightly higher loss ratio for the health segment as COVID-19 related claims and elective surgeries increased. We expect lower interest rates to impact investment income, while FV change accounts should see increased unrealised gains as equity prices improved. Commentary around health and motor claims will be key to watch. ICICIGI: Over FY21E, we expect lockdown and partial working conditions to result in lower top-line growth, but improved CORs on a YoY basis. We maintain REDUCE on ICICIGI with an increased TP of Rs 1,210 (Sep-22E P/E of 27.6x and a P/ABV of 5.5x) as valuations are high and the market is ignoring risks on lower price hikes and potential de-tarification action for motor TP.
Life insurance. Pvt. life insurers' reported an indiv. APE growth of 2.7% YoY in 3QFY21 vs. decline of 3.0% YoY in 2QFY21. Savings business growth returned over the quarter, as indicated by the non-single premium sum assured / premium ratio moderation to 25.3 (-6.7% QoQ, upto Nov-20). Channel checks indicate that NPAR and PAR product sales continue to do well, while ULIP sales are improving. Protection in mix is expected to moderate. Group APE continues to do well for private insurers as 3QFY21 reported growth of 30.7% YoY. Commentary around potential impact of new PF regulations on insurance investments, and lower interest rates on NPAR savings products will be key. Our preferred picks are SBILIFE and MFSL with BUY and ADD ratings and higher TPs of Rs 1,140 and Rs 800, respectively.