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Indian Indices Trade Marginally Lower; Metal Stocks Witness Losses
Tue, 19 Sep 01:30 pm | Monish Vora, TM Team

Share markets in India are presently trading marginally lower. Sectoral indices are trading on a mixed note with stocks in the auto sector and oil & gas sector witnessing maximum buying interest. Metal stocks are trading in the red.

The BSE Sensex is trading down 8 points (down 0.02%) and the NSE Nifty is trading down by 7 points (down 0.1%). The BSE Mid Cap index is trading up by 0.3%, while the BSE Small Cap index is trading up by 0.5%. The rupee is trading at 64.18 to the US$.

In the news from IPO space, the initial public offering of SBI Life is set to hit the market tomorrow. The company has set the price band for issue at Rs 685-700 per share.

SBI Life Insurance Company Limited is one of the leading life insurance companies in India. The company is a joint venture between India's largest bank State Bank of India (SBI) and the leading global insurance company BNP Paribas Cardif. SBI owns 74% of the total capital and BNP Paribas Cardif the remaining 26%.

As per CRISIL report, the company is India's largest private life insurer, in terms of New Business Premium generated in each fiscal year, since FY10. It has increased its market share of New Business Premium generated among private life insurers in India, from 15.87% in FY15 to 20.04% in FY17.

The company has a multi-channel distribution network comprising an expansive bancassurance channel, including State Bank, the largest bancassurance partner in India, a large individual agent network comprising 95,177 agents as of July 31, 2017, as well as other distribution channels including direct sales and sales through corporate agents, brokers, insurance marketing firms and other intermediaries.

On the financial front, the company's profit after tax increased at a CAGR of 8.24% from Rs 8,148 million in FY15 to Rs 9,546 million in FY17 and was Rs 3,134 million for the three months ended June 30, 2017. The company turned profitable within the first five years of its operations, and had declared dividends every year since FY12.

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Speaking of IPOs, the IPO of ICICI Lombard General Insurance Company is open for subscription. Today is the last day of subscription for the IPO.

ICICI Lombard is among the first life insurance companies to commence operation in 2002 and is the market leader among private sector players.

But is the IPO worth considering? Does the company have strong fundamentals? What about valuations and growth potential? Equitymaster Insider Ankit Shah has the answers.

To know more, get on the Insider list now.

One must note that many general insurance companies such as General Insurance Corp of India and New India Assurance Company are also planning to come up with their IPOs.

Various estimates put India's insurance market size at US$100 billion. The same could become a dominant theme for Indian stock markets in the years to come.

This is because the penetration levels for general insurance is very low in India as compares to other countries. As per Crisil Research, the non-life penetration in India is among the lowest with premium income forming 0.8% of the GDP in 2016. This is evident in the chart below:

Non-Life Insurance Penetration in India is Woefully Low

The rate is quite low as compared to the global average of 2.8%. In fact, India lags behind China and Brazil, each having non-life insurance penetration of 1.8%. As per Swiss Re, India is the fifteenth largest market in the world and fourth largest market in Asia.

Going by the above data, it can be said that there remains huge growth potential for non-life insurance businesses. As we also wrote in a recent edition of The 5 Minute WrapUp...

  • The non-life insurance sector in India is valued at Rs 1.28 trillion and has been growing at a compounded annual growth rate of 17.4% in the last 16 years. Demand drivers such as rapid urbanisation, rising disposable income, increasing risk awareness emergence of new risks such as cyber frauds and regulatory focus on improving insurance coverage are expected to accelerate growth ahead.

Therefore, it hardly comes as a surprise that the insurance industry is actively seeking to capitalise on the current IPO frenzy.

In other news, as per an article in the Economic Times, most of the two-wheelers have scheduled launches of electric two-wheelers from 2018.

As per the news, Hero MotoCorp, TVS Motor, Mahindra Two Wheelers, Yamaha and Bajaj Auto are some of the companies that have scheduled launches of electric two-wheelers from 2018.

The development comes as the government is targeting to have all cars propelled by electric engine by 2030.

However, the above target is more daunting than in many advanced countries. This is because the target would require eight to ten times the global stock of such vehicles. India would need to sell more than 10 million electric cars in 2030, compared to 5,000 electric vehicles India had on the road in 2016.

Another issue is the price of the lithium ion battery, which constitutes 30% to 40% of the cost of the car. For this plan to succeed, the price of the battery needs to come down.

The auto sector is already facing regulatory headwinds. The shift from BS-IV emission norms to BS-VI has been two years ahead of schedule without an intermediate stage.

So while setting the above target, the government should also offer the necessary infrastructure support and do its bit for a smooth transition.

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Mar 22, 2018 (Close)