Is Now The Time To Bet On The Financial Sector And Max Financial Services Limited (NSE:MFSL)?

Max Financial Services Limited (NSEI:MFSL), a IN₨136.77B mid-cap, is an insurance company operating in an industry, which has recently experienced the impact of a softening commercial lines market, a problematic personal lines segment, and a low-yield investment climate. Agility has become the new normal as insurance companies are confronted by a marketplace that is continuously changing drastically. Financial services analysts are forecasting for the entire industry, a strong double-digit growth of 12.93% in the upcoming year , and a massive growth of 33.16% over the next couple of years. This rate is larger than the growth rate of the Indian stock market as a whole. Should your portfolio be overweight in the insurance sector at the moment? In this article, I’ll take you through the sector growth expectations, as well as evaluate whether Max Financial Services is lagging or leading its competitors in the industry. See our latest analysis for Max Financial Services

What’s the catalyst for Max Financial Services's sector growth?

Amid challenges from regulatory disruption, increasing consumer expectations and sluggish sales, insurers will increasingly consider technology integration to drive growth and efficiency. In the previous year, the industry saw growth in the teens, though still underperforming the wider Indian stock market. Max Financial Services leads the pack with its impressive earnings growth of 56.24% over the past year. However, analysts are not expecting this industry-beating trend to continue, with future growth expected to be 6.37% compared to the wider insurance sector growth hovering in the teens next year. As a future industry laggard in growth, Max Financial Services may be a cheaper stock relative to its peers.

Is Max Financial Services and the sector relatively cheap?

The insurance industry is trading at a PE ratio of 42.29x, higher than the rest of the Indian stock market PE of 25.27x. This illustrates a somewhat overpriced sector compared to the rest of the market. However, the industry did return a higher 16.74% compared to the market’s 9.65%, which may be indicative of past tailwinds. On the stock-level, Max Financial Services is trading at a lower PE ratio of 34.43x, making it cheaper than the average insurance stock. In terms of returns, Max Financial Services generated 19.24% in the past year, which is 2.49% over the insurance sector.

Next Steps:

Max Financial Services is an insurance industry laggard in terms of its future growth outlook. This is possibly reflected in the PE ratio, with the stock trading below its peers. If the stock has been on your watchlist for a while, now may be the time to dig deeper. Although the market is expecting lower growth for the company relative to its peers, Max Financial Services is also trading at a discount, meaning that there could be some value from a potential mispricing. However, before you make a decision on the stock, I suggest you look at Max Financial Services's fundamentals in order to build a holistic investment thesis.

1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
2. Historical Track Record: What has MFSL's performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Max Financial Services? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.