Will GST rate cut on insurance lead to a re-rating of sector stocks?

The listed life insurance companies have faced a challenging year with their stock prices under pressure due to several reasons, including weak growth in the premium collection and taxation on policy premiums. However, will the Goods and Services Tax (GST) rate exemption on insurance premiums trigger a re-rating of the sector and revive the market confidence?

The performance of top life insurance companies was mainly in the red so far this year. As of September 5, 2025, ICICI Prudential Life Insurance has been the worst-hit, losing over 21% in the past year as its stock slipped from around ₹770 to ₹600.

SBI Life, the largest private player, has also faced pressure, falling by more than 4% year-on-year, despite recovering from its February lows of ₹1,372 to trade near ₹1,818.

Meanwhile, HDFC Life has been relatively resilient, with its stock is up just by 1% over the year, recovering steadily from under ₹600 in early 2025 to above ₹760.

Lower costs could translate into higher demand, improved persistency ratios, and sustained premium growth across insurers. Life insurance companies may benefit from rising long-term policy adoption, while health insurers could see increased uptake in post-pandemic India.

Narender Singh, investment manager of smallcase & founder at Growth Investing, said, "For equity investors, these structural improvements could justify higher valuations, positioning insurance as a strong compounding theme within financial services. For listed insurance players, the benefits could be twofold—volume growth from rising demand and profitability gains from operating leverage. With penetration at just 3.7% compared to the global 7%, the growth runway is vast. A GST cut could act as a powerful catalyst for stock performance, reflecting both their long-term potential and improved near-term earnings outlook."

This clearly shows the exemption of life and health insurance from the current 18% GST marks a structural positive for the insurance sector. By removing a key cost barrier, the move significantly enhances affordability for consumers and is expected to drive stronger penetration across both protection and health segments. However, Prabhat Ranjan, senior director at Nexdigm, says, "For insurers, while GST is a pass-through tax and does not directly impact margins, the indirect benefit of higher policy volumes, better renewals, and deeper market reach will strengthen topline growth visibility."

While considering the views of experts, some of them stated that, from a capital market standpoint, this reform is more than just a tax cut—it represents a long-term growth catalyst for the sector. Improved affordability, coupled with rising awareness of financial protection, is likely to accelerate premium growth, particularly for companies with robust distribution and product depth. This positions the insurance industry for a potential re-rating, as investors begin to factor in stronger penetration, sustainable growth trajectories, and the sector’s enhanced role in India’s financial inclusion agenda.

Vaqarjaved Khan, CFA, senior fundamental analyst, Angel One Ltd, says the move can act as a strong catalyst, but overall long-term growth for the sector will depend on how effectively insurers drive growth, technology and customer trust, which results in market penetration and, in turn, leads to earnings growth. "Re-rating for insurance companies can be on the cards if earnings trajectory improves on the back of strong operating leverage and higher profitability, as most companies are already trading at rich valuation multiples," says Khan.

Additionally, insurance companies, which welcomed the GST cut, are mainly disappointed as they cannot claim what they had hoped for, that this is not the end, and that further rationalisation of GST will occur in the future. This is after the chairman of the Central Board of Indirect Taxes and Customs (CBIC) clarified that neither the benefit of inversion nor the input tax credit (ITC) would be granted to the insurance industry.

"Even though the GST reduction is positive, I don’t think it will have a significant fundamental impact on the company’s business performance," says Kranthi Bathini, equity strategist at WealthMills Securities Pvt. Ltd. "It is a long-term positive, but I don’t believe that just because GST has been reduced, insurance sales will automatically go up. That could be a wrong notion. Overall, it’s a positive step, but I don’t think it will lead to a rerating," Bathini adds.

Overall, the insurance-related GST rationalisation benefits buyers of insurance products, as premiums decrease. "However, the premiums may not reduce to the extent of the reduction in GST, as insurance companies factor in the adverse impact of non-allowance of duty inversion and ITC," says Jyoti Prakash, managing partner, equity and PMS at AlphaaMoney. "Insurance companies shall strategise that higher volumes, due to lower pricing of products, will more than offset the hit to margins," adds Prakash.

At the macro level, analysts expect higher insurance penetration, especially in tier II and III cities, leading to a greater demand for long-term bonds by insurance companies (whether for infrastructure or otherwise).