Huge operating leverage is about to pay off both in insurance as well as the AMCs, says market expert Ajay Bagga.
On the Adani GroupAround the world, there has been very high returns for a few companies and few groups which are positioned well. The Adanis are positioned well with their foray into renewable energy, their power company turning around, their city gas distribution company as well as the ports. East India is now run by Adani Ports and they are getting stakes into western India as well. The conglomerate has really come of age and it has been a blockbuster year for them when most of their businesses benefited from Covid and they managed to catch the tailwinds in all these companies. Valuation-wise, the price to book for quite a few of the companies is on the higher side but that is based on the kind of growth that is embedded and that is what the market is paying for.
On insurance space
Insurance with formalisation and financialisation is a mega trend. We are at the ground floor as far as insurance and mutual funds in India are going. They are going to double every few years and the companies which are running them will concomitantly get a lot of that operating leverage. It does not take much more man power to run Rs 100,000 crore and if that is scaled up to Rs 500,000 crore, the cost does not really go up concomitantly.
So the huge operating leverage is about to pay off both in insurance as well as the AMCs. AMCs were priced to perfection last year and we saw a little bit of correction there and now again things are moving up. Insurance is very well placed in comparison but I would choose both AMCs as well as insurance and across life and general insurance, there is huge growth and no further requirement of capital because they have become self-sustaining. The parameters on which the insurance companies are valued are looking very attractive.