Everyone is watching the downward trend in the stock market, but for the investors of Policybazaar's parent company PB Fintech, these four days have been like a nightmare. The company's shares have fallen by 42% in just 4 trading days. The stock fell more than 6% to hit a new 52-week low of ₹1,076.35 on the BSE on Tuesday. The company's market value of about ₹37,000 crore was wiped out in this disaster.
The stock had closed at ₹1,151.90 on Monday, while its 52-week high is ₹1,963. That means the stock has fallen by about 45% from the high till now. The question is, what is the reason for such a sudden decline?
IRDAI's proposal created a stir
The biggest reason for the decline is a proposal from insurance regulator IRDAI. IRDAI proposes to ban 'dark patterns' on insurance websites. Its scope may also include those methods in which the customer is asked to share his personal details before giving information about the product, feature or pricing.
PB Fintech's major business is related to insurance aggregation, so investors fear that these rules may affect the company's business model. According to the news quoted by Economic Times, Morgan Stanley believes that the proposed framework could reduce the NPV (Net Present Value) of the company's health business by 60-70%, although the NPV of the life insurance business is expected to remain stable.
Experts still bullish: Claim to rise up to 100%
Despite such a huge fall, big brokerage houses remain bullish on the stock. Bernstein has maintained 'Outperform' rating on PB Fintech and given a target price of ₹2,310. This shows an upside of almost 100% compared to Monday's closing price.
While Jefferies has maintained 'buy' rating, but has reduced the target price from ₹ 2,050 to ₹ 1,540. Even after this, it indicates an increase of more than 30% from the current price. That is, experts believe that the current decline may be an overreaction.
What signals for investors?
After such a sharp decline, the natural question is whether this is a buying opportunity or there is still more decline to come. On one hand, the brokerage has a bullish stance, while on the other hand, the real picture of regulatory risk will become clear only after the final framework of IRDAI is released.
One thing is clear — the impact of regulatory changes is visible first and fastest in high-growth stocks like PB Fintech. Before taking an investment decision, weigh the company's quarterly results, the final rules of IRDAI and your own risk appetite. (This is not investment advice. The stock market is subject to risks. Consult experts before making any investment.)
How deep is the impact of IRDAI's proposal?
According to Morgan Stanley report, if IRDAI's proposed framework is implemented, the net present value of PB Fintech's health insurance business could be reduced by 60-70%. The health segment has been the company's fastest growing business, so these estimates are scaring investors the most. However, it is not expected to have any significant impact on the NPV of the life insurance business. This means that the company's core business still remains strong, but questions have been raised about the growth engine.
The aim of IRDAI is to protect customers from misleading online practices. The regulator believes that the customer should get basic information about the product without asking for personal details. If these rules are implemented strictly, online insurance aggregators may have to change the design of their platforms, which may impact conversion rates.