UPI MDR, insurance reforms and earnings growth: Where Deepak Shenoy sees investment opportunities

Detailed summary

Merchant acceptance of UPI transaction charges, changes in insurance distribution costs and robust corporate earnings could reshape the investment landscape. Capitalmind Mutual Fund CEO Deepak Shenoy sees potential in term insurance, pharma, mid-cap banks and industrials, while remaining cautious on IT, retail and parts of the FMCG sector.

Changes in the economics of digital payments and insurance, coupled with stronger-than-expected corporate earnings, could create fresh investment opportunities across select sectors, according to Deepak Shenoy, CEO of Capitalmind Mutual Fund. While the introduction of merchant discount rates (MDR) on certain UPI transactions could improve revenue prospects for payment companies and banks, proposed changes in insurance regulations may benefit insurers by altering the economics of distribution.

The introduction of MDR on certain UPI transactions could create an additional revenue stream for companies operating in the digital payments ecosystem. However, the extent of the benefit will depend on how merchants respond to the charges and whether they continue to favour UPI over other payment methods.

The availability of cash as an alternative could also influence merchant behaviour. Moving away from UPI may prove inconvenient, making merchants more willing to absorb a relatively small charge rather than discourage digital payments.

"Cash is really the only other alternative. If you have to move away from UPI, cash is cumbersome," Shenoy said.

For payment companies, MDR offers a potential revenue stream. However, the benefits may not be distributed equally across the ecosystem. Shenoy pointed out that banks continue to receive the majority of MDR, making the development particularly positive for lenders with significant exposure to UPI as a sourcing channel.

In absolute terms, banks could see a greater increase in profits than some non-bank payment companies. Listed payment players could also benefit, although the eventual distribution of merchant business will determine how much each participant gains.

Insurance reforms could change the profitability equation for insurers

Proposed changes in insurance regulations could have implications beyond distributors and aggregators. Shenoy believes insurance companies themselves could benefit if restrictions on payments to intermediaries…

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