LIC IPO – Buy the Family Silver

JainMatrix Investments presents an Investment Report on RACL Geartech Ltd.

  • 03rd May 2022
  • Sector – Life Insurance
  • IPO Opens 4-9th May
  • Price range ₹902-949 /share; discount for policyholders is ₹60, and for employees is ₹45
  • Large Cap: ₹ 6,00,000 crore Mkt cap

Summary

  • Positives: 1) High life insurance market share 2) massive Assets Under Management and equity market ownership 3) LIC is a solid brand  4) low operating cost 5) good all India sales presence 6) the IPO can be transformative to make LIC more flexible, competitive and profitable.
  • Risks: 1) govt. initiatives and directives that are unprofitable 2) capital and profit ratio restructuring makes financials unpredictable 3) competition from private players and falling market share 4) High NPA ratio 5) attrition in sales agents team 6) Periodic FPOs can subdue the share price.
  • Opinion: Conservative Investors can SUBSCRIBE to this IPO with a 2 year perspective.

Other related IPO reports

Here is a note on LIC IPO.

IPO highlights

  • LIC IPO will have a price band of ₹ 902-949 and will open from May 2 for anchor investors and May 4-9 ‘22 for others.
  • The firm will raise ₹ 21,000 cr. by selling 3.5% stake sale through Offer for Sale (OFS) by promoter. LIC market cap at this pricing is ₹ 6 lakh cr.
  • Promoters of LIC are the President of India, acting through the Ministry of Finance, Government of India. Currently GoI holds 100% stake and post-IPO this will come down to 96.5%.
  • The IPO quotas are: Policy Holders 10%, employees 0.7%, QIB 44.6%, Non Institutional 13.4% and retail 31.25%. The total number of shares in IPO are 22.14 crore shares. This discount for policyholders is ₹60, and for employees is ₹45.
  • Objects of the issue: GoI unloads stake to list LIC. Since it is an OFS, it will not receive any funds in IPO
  • The grey market premium (GMP) of LIC is ₹85 as of today. 
  • One lot is 15 shares and Face Value is ₹10. Retail investors can bid for 1 to 14 lots i.e. 210 shares.
  • The anchor investor portion of Life Insurance Corporation of India’s (LIC) initial public offering (IPO) was oversubscribed on Monday, raising around ₹5,620 crore from anchor investors.

Introduction to LIC

  • LIC is the largest public life insurance companies in India, and took its current form in 1956.
  • It has a 64.1% market share in Gross Written Premium (GWP) in FY21 (CRISIL). It is the #5 largest life insurer globally by GWP, see Fig 1b. LIC has a distribution network of 5,004 offices spread across 36 states and UTs, with 28 cr. policies served as on FY22. It has a workforce of 1,05,207 employees.
  • The proposed IPO will make it the biggest Indian IPO ever.
  • In India, LIC has the largest agent network of 13.5 lakh individuals in 2021, which is 55% of the total agent network in the country and was 7.2 times the number of agents of the second largest life insurer.
  • LIC is the largest asset manager in India (Dec’21) with AUM (includes policyholders’ investment, shareholders’ investment and assets held to cover linked liabilities) of ₹ 41 lakh crores, which was (i) 3.2 times the AUM of all private life insurers in India, (ii) 15.6 times the AUM of the #2 player in Indian life insurance industry in terms of AUM, (iii) 1.1 times the entire Indian MF industry AUM and (iv) 17% of India’s GDP for FY22. (CRISIL). LIC’s investments in listed equity represented 4% of the total market capitalisation of NSE as at that date. (CRISIL). See Fig 1a. Close to 25% of this is equity oriented, and they own more government bonds than the RBI. Thus it is a mega player that can dominate and profit from the growing Indian capital markets. Thus it is India’s Family Silver, which is made available in the IPO.
  • LIC is thus both a Life Insurance and an Asset Management firm.

The rest of the report is available as a download, see PDF –

Do read our insightful research, we attach the complete Investment report in PDF format here.

Disclaimer

This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. JM has no stake ownership or financial interests in LIC or any group company. Punit Jain has been a retail – insurance and annuity customer of LIC for 20+ years. Punit Jain intends to apply for this IPO. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from a RIA – Registered Investment Advisor. Punit Jain is a registered Research Analyst under SEBI (Research Analysts) Regulations, 2014. JM has been publishing equity research reports since Nov 2012. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com.

India showed fastest recovery; cheaper renewable energy; US inflation dips

16th May 2022

JainMatrix Investments wants you to think positive, and get back on Track, so read this:

  1. Germany makes renewable energy cheaper for houses & businesses – OD 16th May
  2. US inflation might have dipped last month from 40 yr high – ET – 16th May
  3. India showed fastest recovery in occupancy in APAC: Hilton exec – ET – 16th May
  4. How Karnataka insulated itself from a power crisis – DH – 18th Apr
  5. India will consume semiconductors of $80 bn: MoS IT – ET – 18th Apr
  6. Carmakers to up production as semiconductor shortage eases – BS – 18th Feb
  7. IT’s gathering momentum and Digital innovation – Hindu BL – 18th Feb
  8. Key sectors look to add capacity, fuel hopes for a recovery – TOI – 13th Jan
  9. India on its way to achieve population stabilisation – ET – 13th Jan
  10. Retail inflation rises to 5.59% in Dec as against 4.91% – TOI – 13th Jan
  11. Exporters across sectors are flushed with orders: FIEO – ET – 04th Jan 2022
  12. Maruti stock can gain with new launches and easing costs – ET – 04th Jan 2022
  13. Vax drive, tax mopup, India Inc profits show economy on track – ET – 24th Dec
  14. India can generate $813 b from agri, food sector by 2030 – ET – 24th Dec
  15. High frequency indicators look upbeat, say RBI – ET – 17th Dec
  16. World shares turn positive after Fed tapering announcement – Reuters – 17th Dec
  17. Indian economy has signs of recovery in 19/22 eco indicators – ET – 07th Dec
  18. India rising, get ready for a long equity rally – ET – 06th Nov (thanks Prajnya Rao)
  19. Roadblocks ahead as Indian IT moves into high gear – ET – 06th Nov
  20. Moody’s changes India rating outlook to stable from negative – MC – 06th Oct
  21. Not China, India will be my first bet outside the US: John Chambers – ET – 06th Oct
  22. India looks a better investment bet than China – FT Money article – 06th Oct
  23. Auto sector gets ₹25,938-crore PLI scheme – key takeaways – MC – 20th Sept
  24. Expect upside in housing sector: Keki Mistry – ET – 20th Sept
  25. Exports hit record high of $35 bn in July – BS – 27th Aug
  26. R​​enewable energy can stand on its own – ET – 27th Aug
  27. Repeal of retro tax to boost trust between industry, govt – MC – 12th Aug
  28. India can have 500-600 large tech companies in 3-5 years – MC – 12th Aug
  29. Govt set for high FY22 tax collection; Q1 is INR 5.6 lakh cr: Icra – ET – 28th July
  30. India among least prepared for automation in APAC, says survey – ET – 28th July
  31. Scientists find green option to plastic – TOI – 21st July
  32. Maruti crosses 50L cumulative sales in rural markets – TOI – 21st July
  33. Indian IT industry to post 11% revenue recovery in FY22 – ET – 07th July
  34. These states to witness good rains in July – Mint – 07th July
  35. Morgan Stanley says a bull run is only getting started, here’s why – MC – 27th June
  36. Health, credit, jobs: FM announces 8 measures – BS – 27th June
  37. Indian Railways approves 660 more trains – HT – 19th June
  38. India’s Covid Vaccination Rate Jumps 60% In June – MC – 19th June
  39. India offers huge potential for digital banks: Report – IndExp – 10th June
  40. 74% employees keen on remote work: Microsoft Index – Mint – 10th June
  41. Unlock status, rules and guidelines – Mint – 10th June
  42. Despite covid woes, profits of Indian firms hit a six-year high – Mint – 24th May
  43. India will be on faster growth path fuelled by infra – TOI – 24th May
  44. How the coming population bust will transform the world – ET – 24th May
  45. Overall coronavirus situation stabilizing in India: Govt – M’Control – 17th May
  46. Exports rise 80% to $7b during May 1-7 – Fin.Express – 17th May
  47. Crude oil and commodities rally as global recovery gains pace – FXstreet – 05th May
  48. Steel sector does well – Indian Express – 05th May
  49. RBI announces loan relief, Rs 50K cr liquidity to tide over Covid – BusinessStd – 05th May
  50. Tata gets nod to acquire BigBasket – (M’Control) – 03rd May
  51. Hot Sectors – a) Ports – $82b being invested in ports (M’Control)
  52. Budget 2021 lays foundation for $5 trillion economy – M’Control – 04th Feb
  53. India pivots to top ESG nation through Budget – ET – 04th Feb
  54. Towards $5 T: What is holding India back? – FinExpress – 07th Jan
  55. India should follow agri – led industrial growth model – BT – 07th Jan
  56. NBFC sector rebounded in six months of FY21, says RBI – LiveMint – 29th Dec
  57. Power sector limping back to normal – ET – 29th Dec
  58. Digital is the way forward in a post-Covid world – LiveMint – 16th Dec
  59. Disinvestment will now gain momentum – ET – 16th Dec
  60. India may grow at 11% in 2022, says N Chandra – M’Control – 13th Dec
  61. Six early trends in financial sector – M’control – 09th Dec
  62. View: How tech makes it possible to solve corruption – ET – 09th Dec
  63. Indian economy back on track in Q2 – FinExpress – 20th Nov
  64. India’s health spend low, needs to be made priority – BS – 20th Nov
  65. GST collections at 8-month high – IndianExpress – 05th Nov
  66. Economy to reach pre-Covid growth by fiscal-end – BS – 05th Nov
  67. COVID in India on recovery – BS – 05th Nov
  68. India reopens its doors, restores most visas – ToI – 22nd Oct 
  69. E-tailing to become USD 200-bn by 2025: Report – ETNow – 22nd Oct 
  70. FM’s consumption boost to turbocharge e-comm – BS – 13th Oct 
  71. Low finance rates leading to increased home sales – ET – 13th Oct 
  72. Gig economy to lead 80% of blue-collar jobs – BS – 13th Oct 
  73. How robust is India’s recovery? – IndianExpress – 5th Oct 
  74. Covid may have peaked in September – ToI – 5th Oct 
  75. Digital payments: Pandemic does what demon couldn’t – ET – 01st Oct
  76. Healthcare Reforms – National Med. Commission started – (ET) – 25th Sept 
  77. Export show signs of a revival – (LiveMint) – 25th Sept 
  78. Economic recovery sustains momentum through first week of Sept – (ET) – 10th Sept 
  79. Rice, sugar push up Q1 farm exports by 23% – (ET) – 10th Sept 
  80. IPL set to kick-start consumption cycle – (LiveMint) – 30th July 
  81. Unlock 4: Metros to start, no lockdowns outside containment zones – (LiveMint) 30July 
  82. Mfg. policies of govt to help firms shift base to India: ICEA – (BS) – 26th Aug 
  83. RBI at end of rate cut cycle, govt must play role for revival: Economists – (BS) – 26th Aug 
  84. Railway earnings, Power generation: weekly indicators about economy – (BS) 18th Aug 
  85. Import embargo plan for 101 defense items to boost indigenisation – (FE) 18th Aug 
  86. Must improve ease of business to be a mfg. hub: Industry captains– (ET) – 07th Aug 
  87. Here’s what Indians have been spending on during the pandemic – (ET) – 07th Aug 
  88. Redesign, rethink whole economy for success in post-Covid world – (ToI) – 05th Aug 
  89. Joblessness at pre-covid level as India unlocks more – (LiveMint) – 05th Aug
  90. Expect V-shaped recovery over next few months: Ridham Desai – (ET) – 30th July    
  91. A major change is shift in format: Panel on education – (ET) – 30th July 
  92. Hiring optimism grows as demand gathers pace – (LiveMint) – 20th July 
  93. IT may see surge in offshoring biz – (LiveMint) – 20th July
  94. The current wave of rail reforms is actually “historic” – (ET) – 17th July 
  95. Mapping India’s Post-Covid Capex Recovery – (BQ) – 17th July 
  96. View: Never a better time than now to build for India – (ET) – 13th July 
  97. India at the cusp of a huge explosion of demand: Panasonic CEO – (ET) – 13th July
  98. Record surge in sales of vacuum cleaners, dishwashers, DIY products – (ET) – 07th July 
  99. Labour shortage, factories go the extra mile to woo migrant workers – (ET) – 07th July 
  100. PMI, GST mop-up point to a pickup in economic activity – (LiveMint) – 02nd July 
  101. India Inc’s big bet on Bharat saving the day – (LiveMint) – 02nd July
  102. Green shoots in Bharat lead country’s economic revival – (LiveMint) – 30th June 
  103. Opinion | The onus is on us to conquer fear – (LiveMint) – 30th June 
  104. Not two years, 200 projects finished during lockdown: Railways – (ToI) – 29th June 
  105. Bankers in India are more productive working from home – (LiveMint) – 29th June 
  106. Global equity markets are likely to continue their up move – (BizStd) – 27th June
  107. Migration is reversing: Trains from UP, Bihar run full – (ToI) – 27th June 
  108. Indicators of economic recovery in India – (EcoTimes) – 24th June
  109. Get India fully back to business, says India Inc – (EcoTimes) – 24th June
  110. Post-crisis, increase integration with global economy – (EcoTimes) – 20th June
  111. Kharif planting rises 40% on strong monsoon start – (EcoTimes) – 20th June 
  112. Maruti Suzuki’s model can make India a global mobile mfg hub – (EcoTimes) – 18th June 
  113. Indian economy to recover very fast: HDFC Bank CEO – (EcoTimes) – 18th June 
  114. A COVID-19 workplace readiness tool for organisations – (IISC) – 17th June 
  115. It is time to be a little positive on financial space – (EcoTimes) – 17th June 
  116. Exports bounce back to last year’s levels in June – (EcoTimes) – 16th June 
  117. Unemployment rate declines sharply as India exits lockdown – (Livemint) – 16th June 
  118. Local trains, Mumbai’s lifeline, resumes services – (Livemint) – 15th June 
  119. Construction work restarts at over 100 projects in NCR – (EcoTimes) – 15th June 
  120. Govt urges use of bicycles, EVs to mitigate risks – (EcoTimes) – 13th June 
  121. Digital is the Key to Unlock this Disruption’ – (EcoTimes) – 13th June 
  122. ‘Put the money in Indian stocks, forget till 2025’ – (EcoTimes) – 12th June 
  123. Loans are getting cheaper, HDFC cuts lending rate – (EcoTimes) – 12th June
  124. View: Replacing China imports possible, even in EVs – (EcoTimes) – 11th June 
  125. ‘Time for Bold Investments, not conservative decisions’ – (Livemint) – 11th June 
  126. After steep falls, June exports show signs of improvement (EcoTimes) – 10th June 
  127. Partial lockdown lift gives work to 21 million; not salaried class (EcoTimes) – 10th June 
  128. Covid-19 is no plague or cancer; fear psychosis unnecessary (EcoTimes) – 09th June
  129. Import-intensive spending likely to feel the pinch – (EcoTimes) – 09th June 
  130. Getting growth back on track is non-negotiable: Uday Kotak (EcoTimes) – 08th June 
  131. Post Covid Opportunities – Global Work Force (Nasdaily) – 8th June
  132. Impetus To Realty Demand, But More Needs To Be Done (NDTV) – 06th June
  133. Collections improving, demand picking up in rural India (EcoTimes) – 06th June
  134. View: How to get Make-in-India to work this time (EcoTimes) – 05th June 
  135. Effects of Unlock 1.0 as new guidelines come into play – (IndianExpress) – 05th June 
  136. Cabinet approves amendment of Essential Commodities Act (Livemint) – 04th June 
  137. Goods movement pickup in May signals economic revival (Livemint) – 04th June 
  138. PM’s First Major Address On Economy After Unlock 1.0 (ndtv.com) – 03rd June 
  139. Five Indian states are leading in the recovery from lockdown – (EcoTimes) – 03rd June
  140. India’s 3-phase ‘Unlock’ Plan starts at last (ToI) – 1st June 
  141. Supply to improve post-unlock 1.0; demand pickup may be slower (Livemint) – 1st June 
  142. Over 1.65 lakh people traveled in 2,198 flights since Monday: Puri (Livemint) – 30th May 
  143. The global supply chain is being reconfigured, India can gain (EcoTimes) – 30th May
  144. Nearly 65,000 cured from COVID-19 in India, 42% recovery rate (Livemint) – 29th May 
  145. An India lockdown survey: The good, bad and the ugly (Eco Times) – 29th May 
  146. How is India doing against COVID19 in 3 graphs – 28th May
  147. Covid-19 proves the importance of telecom in India (Eco Times) – 28th May
  148. India runs on Rails: MORE TRAINS BASED ON DEMAND (Fin Expr.) – 27 May
  149. MY TAXI HAS VEHICLES WITH PPE KITS, CURTAINS (Eco Times) – 27th May
  150. COVID-19 Is Fast-Tracking Digital Transformation – 26th May 
  151. HOW DHARAVI IS TACKLING THE COVID INFECTION RATE – 26th May 
  152. AFTER 2 MONTHS, FLIGHTS ARE BACK – 25th May
  153. HOW INDIA INC. GOES BACK TO WORK, LEADERSPEAK (Eco Times) – 25th May
  154. A THIRD OF NSE MFG FIRMS BACK AT WORK (Eco Times) : 23rd May
  155. MAHINDRA FACTORY – COVID CARE READY – 23rd May
  156. We actually wrote about the need for a lockdown in Mar 2020 – CALL IN THE INDIAN ARMY TO HANDLE THIS EMERGENCY – 20th March
  1. Exporters across sectors are flushed with orders: FIEO – ET – 04th Jan 2022
  2. Maruti stock can gain with new launches and easing costs – ET – 04th Jan 2022
  3. Vax drive, tax mopup, India Inc profits show economy on track – ET – 24th Dec
  4. India can generate $813 b from agri, food sector by 2030 – ET – 24th Dec
  5. High frequency indicators look upbeat, say RBI – ET – 17th Dec
  6. World shares turn positive after Fed tapering announcement – Reuters – 17th Dec
  7. Indian economy has signs of recovery in 19/22 eco indicators – ET – 07th Dec
  8. India rising, get ready for a long equity rally – ET – 06th Nov (thanks Prajnya Rao)
  9. Roadblocks ahead as Indian IT moves into high gear – ET – 06th Nov
  10. Moody’s changes India rating outlook to stable from negative – MC – 06th Oct
  11. Not China, India will be my first bet outside the US: John Chambers – ET – 06th Oct
  12. India looks a better investment bet than China – FT Money article – 06th Oct
  13. Auto sector gets ₹25,938-crore PLI scheme – key takeaways – MC – 20th Sept
  14. Expect upside in housing sector: Keki Mistry – ET – 20th Sept
  15. Exports hit record high of $35 bn in July – BS – 27th Aug
  16. R​​enewable energy can stand on its own – ET – 27th Aug
  17. Repeal of retro tax to boost trust between industry, govt – MC – 12th Aug
  18. India can have 500-600 large tech companies in 3-5 years – MC – 12th Aug
  19. Govt set for high FY22 tax collection; Q1 is INR 5.6 lakh cr: Icra – ET – 28th July
  20. India among least prepared for automation in APAC, says survey – ET – 28th July
  21. Scientists find green option to plastic – TOI – 21st July
  22. Maruti crosses 50L cumulative sales in rural markets – TOI – 21st July
  23. Indian IT industry to post 11% revenue recovery in FY22 – ET – 07th July
  24. These states to witness good rains in July – Mint – 07th July
  25. Morgan Stanley says a bull run is only getting started, here’s why – MC – 27th June
  26. Health, credit, jobs: FM announces 8 measures – BS – 27th June
  27. Indian Railways approves 660 more trains – HT – 19th June
  28. India’s Covid Vaccination Rate Jumps 60% In June – MC – 19th June
  29. India offers huge potential for digital banks: Report – IndExp – 10th June
  30. 74% employees keen on remote work: Microsoft Index – Mint – 10th June
  31. Unlock status, rules and guidelines – Mint – 10th June
  32. Despite covid woes, profits of Indian firms hit a six-year high – Mint – 24th May
  33. India will be on faster growth path fuelled by infra – TOI – 24th May
  34. How the coming population bust will transform the world – ET – 24th May
  35. Overall coronavirus situation stabilizing in India: Govt – M’Control – 17th May
  36. Exports rise 80% to $7b during May 1-7 – Fin.Express – 17th May
  37. Crude oil and commodities rally as global recovery gains pace – FXstreet – 05th May
  38. Steel sector does well – Indian Express – 05th May
  39. RBI announces loan relief, Rs 50K cr liquidity to tide over Covid – BusinessStd – 05th May
  40. Tata gets nod to acquire BigBasket – (M’Control) – 03rd May
  41. Hot Sectors – a) Ports – $82b being invested in ports (M’Control)
  42. Budget 2021 lays foundation for $5 trillion economy – M’Control – 04th Feb
  43. India pivots to top ESG nation through Budget – ET – 04th Feb
  44. Towards $5 T: What is holding India back? – FinExpress – 07th Jan
  45. India should follow agri – led industrial growth model – BT – 07th Jan
  46. NBFC sector rebounded in six months of FY21, says RBI – LiveMint – 29th Dec
  47. Power sector limping back to normal – ET – 29th Dec
  48. Digital is the way forward in a post-Covid world – LiveMint – 16th Dec
  49. Disinvestment will now gain momentum – ET – 16th Dec
  50. India may grow at 11% in 2022, says N Chandra – M’Control – 13th Dec
  51. Six early trends in financial sector – M’control – 09th Dec
  52. View: How tech makes it possible to solve corruption – ET – 09th Dec
  53. Indian economy back on track in Q2 – FinExpress – 20th Nov
  54. India’s health spend low, needs to be made priority – BS – 20th Nov
  55. GST collections at 8-month high – IndianExpress – 05th Nov
  56. Economy to reach pre-Covid growth by fiscal-end – BS – 05th Nov
  57. COVID in India on recovery – BS – 05th Nov
  58. India reopens its doors, restores most visas – ToI – 22nd Oct 
  59. E-tailing to become USD 200-bn by 2025: Report – ETNow – 22nd Oct 
  60. FM’s consumption boost to turbocharge e-comm – BS – 13th Oct 
  61. Low finance rates leading to increased home sales – ET – 13th Oct 
  62. Gig economy to lead 80% of blue-collar jobs – BS – 13th Oct 
  63. How robust is India’s recovery? – IndianExpress – 5th Oct 
  64. Covid may have peaked in September – ToI – 5th Oct 
  65. Digital payments: Pandemic does what demon couldn’t – ET – 01st Oct
  66. Healthcare Reforms – National Med. Commission started – (ET) – 25th Sept 
  67. Export show signs of a revival – (LiveMint) – 25th Sept 
  68. Economic recovery sustains momentum through first week of Sept – (ET) – 10th Sept 
  69. Rice, sugar push up Q1 farm exports by 23% – (ET) – 10th Sept 
  70. IPL set to kick-start consumption cycle – (LiveMint) – 30th July 
  71. Unlock 4: Metros to start, no lockdowns outside containment zones – (LiveMint) 30July 
  72. Mfg. policies of govt to help firms shift base to India: ICEA – (BS) – 26th Aug 
  73. RBI at end of rate cut cycle, govt must play role for revival: Economists – (BS) – 26th Aug 
  74. Railway earnings, Power generation: weekly indicators about economy – (BS) 18th Aug 
  75. Import embargo plan for 101 defense items to boost indigenisation – (FE) 18th Aug 
  76. Must improve ease of business to be a mfg. hub: Industry captains– (ET) – 07th Aug 
  77. Here’s what Indians have been spending on during the pandemic – (ET) – 07th Aug 
  78. Redesign, rethink whole economy for success in post-Covid world – (ToI) – 05th Aug 
  79. Joblessness at pre-covid level as India unlocks more – (LiveMint) – 05th Aug
  80. Expect V-shaped recovery over next few months: Ridham Desai – (ET) – 30th July    
  81. A major change is shift in format: Panel on education – (ET) – 30th July 
  82. Hiring optimism grows as demand gathers pace – (LiveMint) – 20th July 
  83. IT may see surge in offshoring biz – (LiveMint) – 20th July
  84. The current wave of rail reforms is actually “historic” – (ET) – 17th July 
  85. Mapping India’s Post-Covid Capex Recovery – (BQ) – 17th July 
  86. View: Never a better time than now to build for India – (ET) – 13th July 
  87. India at the cusp of a huge explosion of demand: Panasonic CEO – (ET) – 13th July
  88. Record surge in sales of vacuum cleaners, dishwashers, DIY products – (ET) – 07th July 
  89. Labour shortage, factories go the extra mile to woo migrant workers – (ET) – 07th July 
  90. PMI, GST mop-up point to a pickup in economic activity – (LiveMint) – 02nd July 
  91. India Inc’s big bet on Bharat saving the day – (LiveMint) – 02nd July
  92. Green shoots in Bharat lead country’s economic revival – (LiveMint) – 30th June 
  93. Opinion | The onus is on us to conquer fear – (LiveMint) – 30th June 
  94. Not two years, 200 projects finished during lockdown: Railways – (ToI) – 29th June 
  95. Bankers in India are more productive working from home – (LiveMint) – 29th June 
  96. Global equity markets are likely to continue their up move – (BizStd) – 27th June
  97. Migration is reversing: Trains from UP, Bihar run full – (ToI) – 27th June 
  98. Indicators of economic recovery in India – (EcoTimes) – 24th June
  99. Get India fully back to business, says India Inc – (EcoTimes) – 24th June
  100. Post-crisis, increase integration with global economy – (EcoTimes) – 20th June
  101. Kharif planting rises 40% on strong monsoon start – (EcoTimes) – 20th June 
  102. Maruti Suzuki’s model can make India a global mobile mfg hub – (EcoTimes) – 18th June 
  103. Indian economy to recover very fast: HDFC Bank CEO – (EcoTimes) – 18th June 
  104. A COVID-19 workplace readiness tool for organisations – (IISC) – 17th June 
  105. It is time to be a little positive on financial space – (EcoTimes) – 17th June 
  106. Exports bounce back to last year’s levels in June – (EcoTimes) – 16th June 
  107. Unemployment rate declines sharply as India exits lockdown – (Livemint) – 16th June 
  108. Local trains, Mumbai’s lifeline, resumes services – (Livemint) – 15th June 
  109. Construction work restarts at over 100 projects in NCR – (EcoTimes) – 15th June 
  110. Govt urges use of bicycles, EVs to mitigate risks – (EcoTimes) – 13th June 
  111. Digital is the Key to Unlock this Disruption’ – (EcoTimes) – 13th June 
  112. ‘Put the money in Indian stocks, forget till 2025’ – (EcoTimes) – 12th June 
  113. Loans are getting cheaper, HDFC cuts lending rate – (EcoTimes) – 12th June
  114. View: Replacing China imports possible, even in EVs – (EcoTimes) – 11th June 
  115. ‘Time for Bold Investments, not conservative decisions’ – (Livemint) – 11th June 
  116. After steep falls, June exports show signs of improvement (EcoTimes) – 10th June 
  117. Partial lockdown lift gives work to 21 million; not salaried class (EcoTimes) – 10th June 
  118. Covid-19 is no plague or cancer; fear psychosis unnecessary (EcoTimes) – 09th June
  119. Import-intensive spending likely to feel the pinch – (EcoTimes) – 09th June 
  120. Getting growth back on track is non-negotiable: Uday Kotak (EcoTimes) – 08th June 
  121. Post Covid Opportunities – Global Work Force (Nasdaily) – 8th June
  122. Impetus To Realty Demand, But More Needs To Be Done (NDTV) – 06th June
  123. Collections improving, demand picking up in rural India (EcoTimes) – 06th June
  124. View: How to get Make-in-India to work this time (EcoTimes) – 05th June 
  125. Effects of Unlock 1.0 as new guidelines come into play – (IndianExpress) – 05th June 
  126. Cabinet approves amendment of Essential Commodities Act (Livemint) – 04th June 
  127. Goods movement pickup in May signals economic revival (Livemint) – 04th June 
  128. PM’s First Major Address On Economy After Unlock 1.0 (ndtv.com) – 03rd June 
  129. Five Indian states are leading in the recovery from lockdown – (EcoTimes) – 03rd June
  130. India’s 3-phase ‘Unlock’ Plan starts at last (ToI) – 1st June 
  131. Supply to improve post-unlock 1.0; demand pickup may be slower (Livemint) – 1st June 
  132. Over 1.65 lakh people traveled in 2,198 flights since Monday: Puri (Livemint) – 30th May 
  133. The global supply chain is being reconfigured, India can gain (EcoTimes) – 30th May
  134. Nearly 65,000 cured from COVID-19 in India, 42% recovery rate (Livemint) – 29th May 
  135. An India lockdown survey: The good, bad and the ugly (Eco Times) – 29th May 
  136. How is India doing against COVID19 in 3 graphs – 28th May
  137. Covid-19 proves the importance of telecom in India (Eco Times) – 28th May
  138. India runs on Rails: MORE TRAINS BASED ON DEMAND (Fin Expr.) – 27 May
  139. MY TAXI HAS VEHICLES WITH PPE KITS, CURTAINS (Eco Times) – 27th May
  140. COVID-19 Is Fast-Tracking Digital Transformation – 26th May 
  141. HOW DHARAVI IS TACKLING THE COVID INFECTION RATE – 26th May 
  142. AFTER 2 MONTHS, FLIGHTS ARE BACK – 25th May
  143. HOW INDIA INC. GOES BACK TO WORK, LEADERSPEAK (Eco Times) – 25th May
  144. A THIRD OF NSE MFG FIRMS BACK AT WORK (Eco Times) : 23rd May
  145. MAHINDRA FACTORY – COVID CARE READY – 23rd May
  146. We actually wrote about the need for a lockdown in Mar 2020 – CALL IN THE INDIAN ARMY TO HANDLE THIS EMERGENCY – 20th March

We have been tracking this infection since March when it came to India and we had to declare the lockdown. Today, 6 months on, we are at a different phase in the economy. We have to understand that this virus will not go away, it is we who have to adjust to it. Even as we maintain social distancing, and wear masks, and wash hands regularly, the important thing now is to dive back into business and achieve some semblance of normalcy.

Regards,

Punit Jain

DISCLAIMER

This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. Punit Jain and JM has no ownership or known financial interests in any company mentioned in this note. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from an Investment Advisor. Punit Jain is a registered Research Analyst under SEBI (Research Analysts) Regulations, 2014. JM has been publishing equity research reports since Nov 2012. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com.

25 Lessons – Great Investing Wisdom

First published by me on May 11, 2018

Here is a brilliant tweet from @jposhaughnessy. I have added to it some of my commentary. In the note, he touches upon the classic challenges – uncertainty, fear, under-performance, the big new industries, standing out, biases and luck. It is great investing wisdom. 

Jim O Shaughnessy My Thoughts

I’ve added a few of my thoughts, and an Indian angle.

jainmatrix investments
jainmatrix investments
jainmatrix investments
jainmatrix investments
jainmatrix investments
jainmatrix investments

Here are the links that Jim had referred to in case you are interested

Hope you liked this. Do comment below.

Punit Jain

DISCLAIMER:

This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from an Investment Advisor. Punit Jain is a registered Research Analyst under SEBI (Research Analysts) Regulations, 2014. JM has been publishing equity research reports since Nov 2012. Any questions should be directed to the director of JM at punit.jain@jainmatrix.com.

When to make a stock SELL decision

First published July 8, 2014

With the Indian markets pushing to new highs over the last 6 months, its time to ask a loaded, important, yet difficult question.

When should you SELL your stock?

I assume here that you are a long term investor. You are growing your equity portfolio from a minimum 3 year perspective and want to see it meet your big life goals.

Of late you would have looked at your nest egg with a glad eye. In the last 6 months, chances are you have been surprised at the excellent performance of these stocks. It is in these very happy times that you should note the importance of a Sell decision. After all it is very difficult to Time the Market. In stocks it is important to think contrarian. It makes more sense to decide for yourself on your sell decision, execute on it and be satisfied with it.

On a personal note, my favorite holding period for a stock is forever. This is a wisdom gained from the greats of investing. However there are some practical and real situations that we can face. The Indian market is more volatile than the ones the greats live in. These are the situations where you need to think of the Sell decision, and take a call. Here they are:

1. You need the Cash urgently 

The best of well laid out plans can get interrupted. It could be a medical condition. Or education admissions time. Or it could be a desired asset that has become available. Go ahead, and sell. You have earned the luxury of encashing your Demat balance.

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2. Maintain your asset allocation 

Asset classes are varied such as Direct Equity, equity mutual funds, debt/ bond mutual funds, Gold ETFs, real estate, fixed deposits, insurance and cash. You may in consultation with your ‘Investment Adviser’ have agreed to maintain your asset classes in a certain proportion. So when the time comes to re-allocate, its possible that selling of Equity is the call by the agreed formula. This is good, and can help you align your portfolio risk with your personal risk appetite and objectives.

3. Switch to a stronger share 

For a long term investment portfolio, your objective should be to enter into investments with a chosen set of stocks. Read up and track them. And always be on the lookout for a better investment idea. If one comes by and you are convinced, make a switch from a weaker stock to a stronger one. It could be from the same industry. Or even an industry change. You now have a stronger stock portfolio.

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4. Tax considerations 

In India any listed stock investment when sold at a profit after holding for one year constitutes a Long Term Capital Gain, which is not taxed. The one year period should be noted & considered before deciding to Sell.

Sophisticated investors may also consider the converse situation. A Short Term Capital (STC) Loss can be declared in case a loss is booked in an equity investment for a period less than one year. This can then be set off against a STC Gain, in the same year or (by carry forward) in the next few tax years. Speak to your Chartered Accountant before using this strategy.

5. Exceptional gains from a stock 

If you are invested for the long term in a number of stocks, you may be witness to a lot of stock specific activity that can be quite interesting. If your stock has recorded massive recent gains, which are difficult to justify on the basis of fundamentals, it may be time to book partial or even full gains in the stock. Things happen. Shares can appreciate suddenly and unexpectedly. This is a good problem to have. Greed may stop you from doing this. This is where good advice from your Equity Service can be useful.

(JainMatrix Investments is an Equity Service that tracks 3 portfolios for its subscribers, the Large Cap Portfolio 2014, the Mid Cap Portfolio 2014 and the Post Elections Investment Seven)

6. Business has deteriorated (but does not reflect yet in the price) 

You got some good equity research, assessed an opportunity and the risk, and decided that XYZ stock was a great investment. Six months later, something unexpected happened. Maybe one of your investment assumptions went wrong, or an industry specific regulation change, or such. And the future doesn’t look so good for XYZ now. Review the situation with inputs from your Equity Service. Bite the bullet. If justified, take the Sell call. Don’t get married to your stocks. You have to be solid yet nimble in your long term investment decisions. Get out quickly to minimize your losses.

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7. The share price has fallen sharply 

Markets, and shares, by nature are volatile. If the share you hold has seen a sharp fall in price recently, this needs to be analysed. If the fall is due to temporary reasons, like some bad publicity over a minor issue, a temporary technical correction or such reason, then it can be ignored. It may even be a good point to accumulate more shares. But if the reason for the fall is found to be due to a ‘fundamental’ deterioration, then again it may be time to exit.

8. The market changes direction for the worse 

Sometimes the market reaches an inflection point and changes direction. If it is positive like the recent elections schedule announcement then its good for your portfolio. But if it is negative then it may be time to exit, at least partially. This is a tough call to predict. Here again, you can review the situation with inputs from your Equity Service.

Having said all this, it is in the nature of stocks to see long periods of both under and over performance. The market is very very inefficient, and this gives good value and growth investors in India lots of opportunities.

The Converse, a few reasons why you should NOT Sell your stocks in these times:

  1. You can get 10 baggers only if you leave your high potential appreciating stocks alone and let them fly.
  2. If the Modi government delivers on their potential, promise and visibly bold approach, the party for Indian investors has just begun.
  3. For a long term investor, a short term correction of say 10% is not something to worry about. Markets move in a ripple or zig-zag fashion in the short term, but pan to the multi year view, and the Indian indices haven’t looked so bullish since 2004-05.
  4. Valuations for the Indian indicies are just above the average. If the investment cycle is kick starting again, aided by a Modi government, earnings will accelerate and valuations may stay just above average even if the Indices forge ahead sharply.
  5. Indian Retail, hurt by the dull period of 2008-12 and big damaging overpriced IPOs, is just about starting to join this market rally, if MF numbers are anything to go by. Picture abhi baki hai mere dost.

Overall Opinion

  • Stay positive.
  • Book partial gains in some stocks.
  • Temper future expectations from Indian Indices after the recent run up.
  • Watch for cues from the budget.

But as usual there are no easy answers.

Happy Investing,

Punit Jain, JainMatrix Investments

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Disclaimer

This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from an independent Financial Expert/Advisor. Either JM or its affiliates or its directors or its employees or its representatives or its clients or their relatives may have position(s), make market, act as principal or engage in transactions of securities of companies referred to in this report and they may have used the research material prior to publication. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com

Equity Portfolio Thoughts – Control, Wealth and your Reflection

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Date 28/01/2022, first published 23rd March 2015  

Summary

  • An Indian investor is free to invest in any of 5000+ stocks listed on the exchanges.
  • He may have a range of needs in his equity portfolio, which we have captured in a hierarchy.
  • He may like to progress on this range and exercise his choices in a calibrated fashion

Introduction

I was speaking to an investor a few weeks ago. A busy executive, he had a medium size equity portfolio by value. But I was astonished to see that he had almost a hundred shares in his Demat account. And he looked at me and asked, “So what should I do with my portfolio?” I was of course on a tight time schedule, and ran through my 4-5 step standard template for portfolio discussions.

A little later, on reflecting on the above question, I realized that the answer to the above question can be very nuanced. And really there can be multiple approaches and answers to this question.

Let’s step back to the very basics of the question, what does a person need from his equity portfolio?

An Equity Portfolio – A Hierarchy of Needs

To answer this question, we need to draw parallels from the Maslow’s hierarchy of needs, and it is summarized below. Expressed simply, every human can have a number of needs, but at different times in his life, and in different situations, the needs change. Generally speaking, the needs follow a hierarchy.

Portfolio hierarchy, JainMatrix Investments

An Equity Portfolio – A Hierarchy of Needs. Source: JainMatrix Investments. Click to enlarge.

In a similar way as Maslow’s needs hierarchy, a person’s equity portfolio reflects different needs in investing and his ability to focus efforts and achieve his personal needs and objectives. Here are the levels that I am able to present:

  1. Gain Control: I have seen many equity portfolios that are nothing more than a legacy of 15 years of sporadic investment enthusiasm. With funds available and a pep talk by anyone, individual investors may make a series of purchases. This may be followed by 6 months of watching the results unravel, followed by 4.5 years of inaction. All of which may be repeated again. As a result the shares may be an uncoordinated mass of choices from the past. Selling is more difficult than buying.
    • It may seem that ‘Do nothing’ is an option here. After all these stocks can sit in your portfolio for another 5 years, and your carrying cost is as less as Rs 1000/year. Wrong. If you are not in the right stocks for a ‘long only’ portfolio, chances are that over time your portfolio will decay in value rather than strengthen.
    • The task of the Investor (along with his portfolio adviser) would be to try and gain control of this portfolio. The basic issues here are –
      • 1. What’s the objective and primary need of this portfolio?
      • 2. How many shares are we comfortable with?
      • 3. Whats the risk appetite and profile of the investor?
      • 4. How do we achieve these 1, 2 & 3, and in what time frame?
    • Also essential to Gain Control, is the need to identify and exit the low potential stocks.
    • In my opinion even stable long term (example – avg. holding of 10 years) investment portfolios should be reviewed once a year to align with macro/ sector events and to evaluate opportunities.
  2. Absolute Returns and Profits: Typically equity trading has a very clear objective, of maximizing returns from any trade. Similarly we obviously invest money with the plan of gaining profits and building wealth. The question here is, over what time span? One hour? One week? One year? A decade? New investors are typically looking for a simple quick absolute return.
    • For an investor, the portfolio strategy here is to simply find the shares that have a high confidence rating of highest upside potential. To find such shares is an ongoing exercise. Many successful finds for example may achieve their potential and may not be investment worthy any longer. Others may continue appreciating for decades. However this exercise is also fraught with risks. Many highly rated shares may fail. Or a sector may be affected by an unexpected event.
    • Its critical here to not just understand a target investment firm for its financials, management and business assets, but also the sector and macro context of this firm.
  3. Safety and Stability: Very soon a trader/ investor may realize that just desire for profits and available funds is not enough. One has to approach investing with a safety plan, and temper high profit expectations with realistic back up plans and a safety net. Am I taking too high a risk, with the possibility of a big loss? What’s my worst case scenario? What risk am I comfortable with? And for how much of my portfolio? With some experience, an investor is able to balance the profit expectation with an understanding of risk, and build his checks and balances.
    • For some thoughts on Risk v/s asset classes see LINK.
    • Every asset class has an associated risk. And a good fundamental researcher can assess and understand this risk well. So for a long term equity investor to have a 100% returns per annum expectation is asking for too much. He may actually get it but only once or twice in a decade. And this may soon be followed by a hurtful loss, equally unexpected.
    • A good equity Portfolio should be able to limit equity holdings within individual firms and within a sector, and also align the market cap focus with risk profile such as Safety – large caps, Higher risk – mid caps and Aggressive – small caps.
    • Embed from Getty Images
  4. Belonging: Community, Region, Profession, etc: At another level of the investment hierarchy, a wealthy investor may start thinking of his investments not just as a means to grow wealth, but as an expression of his place in society. This means the person is focusing a part of his funds towards the things that are important to him, an extension of his personality.
    • This could perhaps mean that for a Bangalore based person like me, I could invest in firms like Titan, Brittania Industries, BF Utilities, Mindtree, etc. which are local firms. I may get a feeling of pride to see these firms doing well, and even though a small shareholder, would be sharing a part of a big success.
    • Similarly as a former software executive, I may like to invest in a few software small caps that I not just understand well but also hope that my ownership in a small way can contribute to its success. It’s more about encouragement and support than just returns.
    • In terms of an exclusion list, a lot of people may be uncomfortable about investing in sectors such as cigarettes and liquor/alcohol. Its really upto the investor to be comfortable with his investments, right?
  5. Self Actualization: A wealthy investor may actually decide to focus his funds towards doing real good, or addressing problems of society. In the past the only way one could do this was in making donations to NGOs, and Education or Religious Trusts. In today’s economy there are several listed corporates that address the needs of the weaker sections of society, or of the environment, and still have an objective of making profits for shareholders. I see no essential compromise in achieving both these objectives. There is, possibly, “A Fortune at the bottom of the Pyramid”.
    • I believe firms in sectors like education, environment, renewable energy and some NBFC’s in housing finance and micro-finance may be addressing and solving large problems of society.
    • Readers are invited to revert to me with their ideas or suggestions of such firms that they have come across.

In Conclusion

Different investors may have vastly different needs in their equity portfolio, and we have mapped these in the form of a simple hierarchy. Many of us could be frozen in inaction at Stage 1 of this hierarchy. Others may have progressed along the stages and gained control and solid wealth from it. Some may actually have a portfolio that expresses their hopes and dreams for their society. Its essential for an Investor to reflect objectively about his own portfolio and think about improvements.

So where are you in this hierarchy? Drop me an email to see if I can help you with aligning your Equity Portfolio to your own needs. See Portfolio Review for a short description of our services.

JainMatrix Knowledge Base:

See other useful reports

Disclaimer

This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. Many firms are mentioned in this report, and it should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from an independent expert/advisor. Either JM or its affiliates or its directors or its employees or its representatives or its clients or their relatives may have position(s), make market, act as principal or engage in transactions of securities of companies referred to in this report and they may have used the research material prior to publication. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com

Star Health IPO – A Toast, to your Health!!

  • Date 30th Nov; IPO Opens 30-2nd Dec, at ₹ 870-900/share
  • Large Cap: ₹51,800 cr. Mkt cap; Sector – Insurance, Health
  • Advice: SUBSCRIBE
  • Why Buy Now: The waves of Covid have pushed SHI into losses but 1) we do not anticipate more severe waves in future, and 2) SHI should be able to recover through faster business growth and adjustment of prices for the covid pandemic. By having an IPO at this time, investors have an opportunity to buy SHI at low valuations We expect profitability in SHI by 2022, even as it grows rapidly in revenues and network. Once this happens, this IPO entry price will look reasonable.
  • Risks: 1) Loss making entity, so this is a risky investment opportunity 2) Uncertain covid outlook 3) high competition 4) New infectious diseases 5) regulatory uncertainty.  
  • Opinion: Investors with a risk appetite can SUBSCRIBE to this IPO with a 2 year perspective.  

Here is a note on Star Health and Allied Insurance IPO (SHI).

IPO Highlights

  • Star Health IPO will open from Nov 30 – Dec 2 with a price band of ₹ 870 – ₹ 900.
  • The firm will raise ₹ 7,249 crores, including fresh issue ₹ 2,000 cr. and offer for sale 5.83 cr. shares by promoters & shareholders, for max. ₹ 5,249 cr., together 14% of post IPO shareholding.
  • Star Health is looking for a market cap of ₹ 51,796 cr.
  • Promoters currently hold 66.22% stake and post-IPO this will come down to 58.3%. Public holding will increase from the current 33.78% to 41.70%. The quotas are QIB 75%, NII 15%, and Retail 10%.
  • Promoters of Star Health are Safecrop Investments India LLP, WestBridge AIF I and Rakesh Jhunjhunwala. The shareholders selling shares in the IPO include promoter Safecrop Investments India LLP, and many other (public) shareholders.
  • The grey market premium (GMP) of SHI has declined sharply to below ₹ 10 per share, according to people who deal in unlisted stocks; it has fallen from ₹ 90 per share last week.
  • Objects – with the funds raised from fresh offering, SHI plans to augment the company’s capital base and maintain solvency levels.
  • One lot size is 16 shares and Face Value is ₹ 10. Retail investors can bid for one or more lots, and a minimum of ₹ 14,400 or multiples of this, upto a maximum of ₹ 1,87,200 for 13 lots and 208 shares.

Introduction to Star Health and Allied Insurance

  • Star Health and Allied Insurance is the largest private health insurer in India with a 15.8% share in FY21 (CRISIL Research). Started in 2006, it is #1 based on health GWP over 3 years.
  • It had retail health GWP of ₹ 9,349 cr. in Fiscal 2021. SHI made a loss for the first time in 3 years in FY21 even as revenue rose, due to Covid.
  • Its health insurance product suite insured 2.05 cr. lives in retail and group health, which accounted for 89.3% and 10.7%, resp, of total health GWP (Gross Written Premium) in FY21.
  • It has a distribution network of 779 health insurance branches spread across 25 states and 5 UTs. Its agency distribution channel also includes corporate agent banks and other corporate agents, which accounted for ₹ 220.9 cr. and ₹ 19.1 cr., resp., of its GWP in FY21.
  • Promoter of SHI are Safecrop Investments India LLP, WestBridge AIF I and Rakesh Jhunjhunwala.
  •  The proposed IPO will make SHI the fourth private sector insurance provider to list on Indian stock exchanges, following HDFC Life, ICICI Prudential Life and ICICI Lombard General.
  • Star Health’s total number of individual agents grew at a CAGR of 27.3% from 2.9 lakh (Mar’19), to 4.6 lakh (Mar’21) and 5.1 lakh (Sept’21). Under the IRDA (Appointment of Insurance Agents) Regulations, 2016, insurance agents are only permitted to sell the policies of three insurers: one life insurance company, one non-life insurer and one health insurer.
  • SHI has enabled online purchase of policies in as less as 5 minutes on website Starhealth.  
  • SHI has already allocated ₹ 3,217 cr. to 62 anchor investors today.
  • Key leaders: V Jagannathan, Chairman & CEO, Dr. S. Prakash, MD (since ‘19), Anand Roy MD (‘19)

Fig 1a) Revenue Segments in FY21 and b) Industry Market Shares

Insurance 101, and Health Insurance in India

  • Insurance is a very useful product. There are several types – Life, Health, Automobile, Property, Farm/crop, and all kinds of asset insurance products. Products are for retail or business consumers.
  • Health insurance is a long term product. Having a health problem is not highly predictable, so it is bought so that in case a hospitalization happens, you are protected to the extent of Sum Assured.
  • Salaried employees may get Group health insurance from their employer. They should check if their families are also covered – this may be an add-on. Non salaried need to buy on their own.
  • The health insurance penetration in India is low at just 0.36% of GDP whereas the global average comes around 2% of GDP. Countries like the UK, China, Argentina and the United States have higher penetration level of 0.61%, 0.65%, 0.78% and 4.1%, respectively.
  • The players are regulated by IRDAI (Insurance Regulatory and Development Authority of India) and is subject to regulatory uncertainty and compliance requirements.

Fig 2a) Penetration

Fig 2b) Premium per person

Fig 2c) Industry segments  

  • The average premium paid per person in India at $5 / ₹ 375 per year on average for the population.
  • Health in India is a split sector – the govt. of India does offer public hospitals and facilities that are free, but there are insufficient facilities in most places to cover the population. Wherever govt. facilities are insufficient or inadequate, people have to pay and use private medical services.
  • The Covid crisis of FY21 & FY22 has shown the importance of Health insurance. At the same time we can see India has low penetration of health cover, high out-of-pocket expenses, and only 10% of the population has insurance policies outside of government plans, according to CRISIL Research.
  • The total expenditure spent on healthcare by the centre and states for FY20 was 1.6% of GDP, including establishment expenditure of salaries, gross budgetary support to various institutions and hospitals and fund transfers to states under centrally sponsored schemes such as Ayushman Bharat.
  • Health insurance industry data shows the types of companies and product segments.
  • Personal experience: As a customer of the Family Floater product from SHI, I had it for several years with no claims. About 3 years ago, I suddenly had to use the insurance for a hospitalization and operation. It was a relief that these were covered. The process was easy and a doctor came to verify the patient, operation and hospital. SHI finally reimbursed about 90% of my claim.

Financials of SHI

  • Revenues have grown steadily, but PAT fell in FY21 & H1FY22 due to Covid.
  • The cash flow for SHI is shown in Fig 3b. It’s clear that FY20 and FY21 have been negative for FCF.

Fig 3a) Financials, and Fig 3b) Free Cash Flow

Benchmarking

We benchmark SHI against listed insurance firms in India, and PolicyBazaar. See Fig 4.

Fig 4 – Benchmarking

  • As a loss making firm, the PE is negative for SHI. As are the profits.
  • On sales growth we can see that SHI is close to the leader, SBI Life. New India lags here.
  • As a result, the key valuation parameters are P/B, EV/Sales and Mcap / GWP.
  • The P/B of SHI is about average. New India is valued low partly as it’s a PSU. HDFC Life is expensive.
  • On EV to sales, SHI is a value leader. Highest is SBI Life. On Market Cap to GWP, again SHI is the leader while HDFC Life is most expensive. On revenues, we can see that SHI is the leader. However, the loss making situation is marring the valuations of SHI on traditional parameters of PE and ROE.
  • Putting this together, we sense that SHI is a valuable asset available at low valuations due to the covid related losses. It’s entirely possible that post covid, SHI may emerge quite profitable.
  • Star Health stands out among other standalone health insurers (SAHI) in terms of size, strong growth rates (32% Gross Written Premium CAGR over FY18-21) and better operational performance which is reflected in pre-Covid numbers for the company (~93% combined ratio).

Positives for SHI and the IPO

  • Largest private health insurance firm in India with leadership in the attractive retail health segment.
  • There is low penetration of health insurance in India. Also Post covid, awareness of health insurance has risen. This category may continue to see high growth.
  • The famous Indian investor Rakesh Jhunjhunwala has backed SHI as promoter. As he has a large following in India, this helps with publicity and investor confidence.
  • India has an aggressive plan for vaccination and has covered a good proportion of population. The one dose number has crossed 100 cr. and two doses 37 cr. There is a plan for a booster dose too.
  • SHI has a good brand, a national presence, and the largest network distribution in health industry.
  • Diversified product suite with a focus on innovation and launch of new and specialized products.
  • Strong risk management with superior claims ratio and quality customer services.
  • Demonstrated track record of operating and financial performance.   
  • Low valuations as per benchmark analysis.
  • The sector is divided 46-54% between PSU and private. There is ample opportunity to grow for SHI.
  • The second wave was better handled by people & hospitals compared to the first. With this experience, any further waves should be handled better in terms of prevention and cure.

Risks and Negatives for SHI and the IPO

  • In India we appear to be in a recovery from Covid, but we cannot accurately predict any 3rd/4th wave in India and the business impact of the same. Omicron is a new variant found recently also.
  • The company has suffered a setback for the last 18 months due to covid, and has run into losses.
  • In order to emerge from this crisis, SHI may have to raise the prices of its products.
  • There are 29 active health insurance companies in India. It’s a competitive space and thus it may be difficult for any one company to dominate or win a 40%+ market share.
  • Post covid, GoI may be forced to raise spending on healthcare, which is mostly free services.
  • The Medical Council of India has been replaced by the National Medical Commission in FY20 for the purpose of medical education and medical professionals. The poorly regulated sector has seen shortages of doctors and nurses, and hopefully this will improve in future.
  • Recent loss making firms that have IPO’ed had uneven results. Zomato and PolicyBazar have done well, but Paytm had a rough first week.

Overall Opinion and Recommendation

  • Public sector healthcare is inadequate and of insufficient capacity. With rising medical services and medicine costs there is ample demand for health insurance.
  • SHI has grown rapidly and is well focused on the health insurance sector.
  • The waves of Covid have pushed SHI into losses but 1) we do not anticipate more severe waves in future, and 2) SHI should be able to recover through faster business growth and adjustment of prices for the covid pandemic.
  • There is a massive growth opportunity for health insurance in India as affluence grows. This will also be driven by higher inflation in medical services.  
  • As the largest private player, SHI has an opportunity to grow the market and service the demand.
  • We expect profitability in SHI by 2022, even as it grows rapidly in revenues and network. Once this happens, this IPO entry price will look reasonable.
  • Risks: 1) Loss making entity, so this is a private equity type, risky investment opportunity 2) Uncertain covid outlook 3) high competition 4) New infectious diseases
  • Opinion: Investors with a risk appetite can SUBSCRIBE to this IPO with a 2 year perspective.

Disclaimer

This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. JM has no stake ownership or financial interests in Star Health or any group company. He has been a retail customer of SHI for 5+ years. Punit Jain intends to apply for this IPO. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from a RIA – Registered Investment Advisor. Punit Jain is a registered Research Analyst under SEBI (Research Analysts) Regulations, 2014. JM has been publishing equity research reports since Nov 2012. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com.

A View on the Sensex

Date: 28th Nov 2021

The Sensex Returns V/S GDP Growth chart

Chart Explanation

  1. Chart Notes: 2021SF is 2021 So Far. CY is calendar year. Also a positive ‘High-Low Return’ number indicates that intra-year high was after intra-year low and vice-versa. Data Sources: wikipedia, Bloomberg, Credit Suisse.
  2. The CY Sensex returns reflect key events – 1999 dot com up; 2000 crash, 2008 crash etc.
  3. The average CY Sensex return over 20 year period is 18%.
  4. The High Low Return is the intra CY volatility. The GDP real growth line largely runs similar to Sensex return while being mostly positive and smoothened out. Except 2020.

Key Observations

  1. The CY Sensex return over 2018-2021SF isn’t very high. It looks like just average returns. The volatility is high with higher highs and lower lows. GDP growth has fallen in 2020 and now looks in recovery mode.
  2. It does appear that the GDP fall is not reflected in the Sensex returns.

Conclusion

  • Sensex returns have been low to average, contrary to public opinion. Volatility has been high.
  • A good GDP recovery in CY21-23 can raise Sensex returns to above average levels.

Disclaimer:

This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from an independent expert/advisor. Punit Jain has applied for certification under SEBI (Research Analysts) Regulations, 2014. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com