EUR 120.00 For Business Accounts Only

MOSL: FINANCIALS – NON LENDING | 2QFY23 PREVIEW: Healthy momentum seen across cap markets, GI and MF

Financials – Non Lending | 2QFY23 PREVIEW: Healthy momentum seen across cap markets, GI and MF

• Capital market activity picked up momentum in 2QFY23 across most parameters (volumes, orders) except client addition. Volumes in F&O for both equities and commodities continue to surge, while cash volumes recovered. We expect all the companies under coverage to see a sequential uptick in revenues and profits.
• General Insurance industry saw growth momentum slowing down albeit previous quarters had the advantage of the base effect. Although the Health segment slowed down, it remained healthy at 14% YoY in Aug'22. The Motor segment too saw steady growth of 12% in Jul/Aug'22. Health claim ratios are likely to be elevated with monsoon-related ailments and sticky COVID-related consumables/tests. We expect both STARHEAL/ICICIGI to report growth in profits.
• MF AUM for the industry grew MoM in Jul/Aug on the back of SIP volumes and positive MTM, leading to increased share of equity in industry AUM. CAMS and IIFLWAM should see benefits from these trends.
• We remain excited about the long-term growth potential of the non-lending financials, given the broader themes of financialization and digitalization of savings. Our top picks in this space are ANGELONE, IIFLWAM, and STARHEAL.

Incremental demat account addition slows down but volumes see a strong recovery in cash segment; F&O volumes continue to surge 

The retail segment cash ADTO at NSE grew 9%/28%/5% MoM in Jul/Aug/Sep 2022. On the other hand, F&O volumes saw 1.5%/25%/ 11% MoM increase in Jul/Aug/Sep 2022. This was in spite of high volatility in markets on the back of global inflation concerns. Incremental demat account addition in Jul/Aug were at 1.5/2.6m vs average of 2.3/2.9m in 1QFY23/FY22. Although Aug 2022 saw a recovery in client addition for ANGELONE, the average numbers for 2QFY23 will still be lower than in FY22. However, the number of orders has remained healthy with per day orders at 3.6m in Aug 2022, a new high for the company. We expect a recovery in revenues and profitability for ANGELONE. For ISEC, we expect revenue growth to rebound on the back of recovery in cash volumes, seasonal uptick in life insurance distribution revenues and improvement in IB revenues.

General Insurance sector sees healthy premium growth; health claim ratio remain elevated; opex to see benefits of scale

Overall GWP for the industry grew 16%/12% YoY in Jul/Aug’22, driven by 20%/14% YoY growth in the Health segment and 12%/12% growth in the Motor segment. For ICICIGI, the premium growth in Jul/Aug’22 was at 29%/21%, driven by Health segment growth of 39%/40%. Motor segment growth was muted at 2% each month. STARHEAL saw a growth of 9%/13%, driven by retail growth of 23%/25% as group health business declined 61%/56%. Health segment claim ratios are likely to sustain (vs expectation of decline) as monsoon-related ailments and sticky COVID-related consumables/tests keep the severity of claims higher. Opex ratios are expected to see benefits from operating leverage.

Mutual funds AUM improves, led by SIP flows and positive MTM; IIFLWAM to see benefits of transition to ARR

MF industry AUM saw a MoM growth of 2%/5% in Jul/Aug’22, driven by SIP flows which were at INR127b for Aug’22 (a new high) and a positive MTM with Nifty yielding 12.5% return cumulatively for Jul and Aug. Resultantly, the share of equity in overall AUM for the industry was at 45% in Aug’22 up from 43% for 1QFY23. CAMS will be a clear beneficiary and will see improved revenues and profitability. IIFLWAM should see better traction in its ARR assets, driven by healthy MF distribution. Profitability improvement should continue, led by sustained benefits of transition to ARR.