Monday, 25 June 2018


Does the expectations of the outcome of the 2019 elections send a shiver down your spine? If the answers to all the questions is yes, welcome to the club of the worried domestic investor.
Before I tell you where to invest confidently in this volatile market, let me assure you of a few things.
The markets by nature are volatile. In fact, the volatility is a sign that the markets are alive and licking. Don’t worry about it. Learn to live with it.
Markets are always uncertain and volatile. So no matter when you decide to invest, or how long you wait, you will always end up investing in an uncertain markets.
Let me give you a recent example.
At the end of April, Investors were in a wait and watch mode in the month of May. Reasons were obvious. May 12th was the date when the U.S. was supposed to take a call on the Iran deal. May 15th was the counting of the Karnataka Assembly. So the common investor wanted to get the results out of the way first then invest.
Trump surprised the global markets by cancelling the 2015 Iran deal on May 8 itself. Karnataka elections were a roller coaster, so much that even after a few days of the results being known, there was still uncertainty.
Have those investors invested.  No!
New worries are surrounding them. Last week they were worried about the rising yields of Italian bonds. And now that Italy finally had a government in office on the morning of 1st of June, they were now waiting for the Spanish Vote of Confidence. More uncertainty awaits them now as a new Government will have to be sworn in as the Spanish PM lost the confidence vote.
The point I am making is that no matter how long you wait, you will still have uncertainties.

What to do?
Investor in sectors that have a good visibility, growth prospects and have a favourable ecosystem to flourish.
FMCG, Consumer Durables, Autos, Banks have done well for many years. While these will continue to do well, I will bring to your notice a nascent sector that will flourish despite all the noise in the market place.

It’s Life Insurance
It may sound perplexing that life insurance business has been round in India since 1818, when Oriental Life Insurance Company was established in Calcutta, then why is this opportunity of recent origin or nascent?
Well, while this business was in vogue for many years, you could not buy any share directly in a life insurance company till about the first IPO of a pure life insurance company, ICICI Pru came about in September 2016. It was followed by the SBI Life IPO came in September 2017 and by HDFC Life in November 2017 (Not under coverage as it is a group company)
The largest of them all is LIC of India, but is not currently listed.

Abysmally Low Penetration
Simply because penetration of Life Insurance in India is very low it makes an exciting high growth sector. Consider this. The ratio of premium to GDP in India is only 2.7% as against a world median of 3.5%, or Thailand’s 4% or South Africa’s 11%.
That leaves a lot of gap to catch up with.
Another way to look at the opportunity is the number of life policies in comparison to the population.  That ratio is abysmally low at 2% as compared to 80% in developed countries.

And even those who have a policy are grossly underinsured
This comes as a surprise that even people who are aware and have taken an insurance policy are grossly underinsured. Conduct a dip test amongst the people around you and you will soon realise, how grossly underinsured India is.
So in India, we not only have the issue of lower penetration but also under-insurance. Both these factors mean faster growth opportunities.

FIIs and Pension funds like them
Long term institutional investors like pension funds and other FIIs love life insurance sector for the visibility it offers. They have benefitted from their investments in this sector globally. This sector is the best play on India’s demographics. And knowing the growth possibilities in the sector, they are likely to be hold these stocks for really long term.
FIIs have long held the parents of these companies like ICICI Bank and SBI. But now that these insurance subsidiaries have been independently listed, they are taking a direct exposure to the desired extent.
They are now playing the India story directly through these companies.

The tax advantage
This year’s budget on 1st February, gave the insurance sector a gift, exempting the investments through ULIPs from the Long Term Capital Gains (LTCG) tax.
While direct equity and mutual fund units will bear the LTCG impact, the ULIPs will be exempted. This gives the ULIPs a tax differential which will make them a preferred vehicle of equity investments.
As more money flows into ULIPs the AUMs of these insurance companies will rise, enabling them to improve their returns to their shareholders.

Stellar Growth
New business in life insurance premium has increased at a CAGR of 24.3% for the years 2015-17. This growth was registered before the differentia tax benefits plugged in. Going forward, the growth could be higher because of these tax breaks.

Life insurance companies are one of the best ways to participate in the India growth story and benefit from the changing demographics. I expect the sector to give better than the market returns for the simple reason that it is growing at a higher rate than the economy and will continue to do so in the foreseeable future.
There is no need to hurry. Make them the core of your investments and buy as per your investment strategy - in a lump sum, staggered buying or a SIP, choose your methodology.
But before you place the order for your first stock, ask yourself how much you are worth and take out a hefty term plan policy first.
First get adequately insured, then invest!!

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