Why are investors attracted to Insurance and Microfinance companies when they are riskier?

Price-earnings ratio (P/E Ratio) is the ratio for valuing a company that measures its current share price relative to its per-share earnings. It shows the amount Investor is willing  to pay for Rupee 1 of current earning. Generally high P/E stock indicates high risk and vice versa. High expectation from a stock results in higher price of the scrip that makes it overvalued and riskier. At present we can see the P/E ratio of microfinance and Insurance sector are too high compared to the commercial banks. Why  investors are more attracted to microfinance and Insurance sector when these sectors have higher risk compared to commercial banks? Shreejesh Ghimire Chief Executive Officer NMB Capital Limited P/E ratio is a strong indicator that needs to be checked while making an investment, but it is not the only indicator. The P/E ratio of the companies belonging to the microfinance and insurance sector is high still investors are willing to make an investment in such companies because of three reasons Price to sales ratio (PSR ratio): PSR  is also an important indicator to be checked while making an investment. Investors are attracted towards  microfinance companies and insurance companies as they have the possibility of generating higher revenue in the future. Growth stock:  The microfinance companies that have recently floated the IPO and  started being traded in the market have a higher P/E ratio as they are considered as growth stock. These companies are considered to have substantial potential for growth in the foreseeable future. Demand and Supply: The supply of insurance companies and microfinance companies are much lesser than those of the commercial banks. On an average, each commercial bank  has a paid up capital of Rs 3-4 arba whereas on average, each insurance company has a paid of capital of Rs 30-35 crore. The supply of stocks of Insurance companies and Microfinance companies is much lesser so there is high demand and they have  high P/E ratios.   Bijaya Lal Shrestha Chief Executive Officer NCM Merchant Banking Limited In my opinion, there is higher charm in Insurance and Microfinance sector because of the possibility of growth in future. In  future Microfinance and Insurance sector will also need to hike the paid up capital so at present there is more charm toward these two sector,though they have a higher P/E ratio compared to the banking sector.