Here is a summary of a few discussions we recently had on various topics and sectors of Indian markets – End Nov 2022. As SEBI Registered Investment Advisors we often get many inquiries on such topics and wish to share the same.
On Insurance Fintech
PB Fintech is a good proxy for the insurance demand in the country. However, it is not necessarily a simple case of buy and hold forever. The stock has corrected nearly 65%, i.e. fallen to one-third of its IPO price. There have been some regulatory changes on commission limits, which might augur well for all broker agents. Caps on commission payouts are proposed to be relaxed for non-life insurers, however, other regulations will follow that will allow smaller insurers to emerge with leaner cost structures and go direct to customers. Additionally, the Bima Sugam launch could become the UPI movement for insurance buying in the country. This could flatten cost structures and benefit insurers and not the brokers. These two trends might negatively impact the company. While PBF has a strong position in the space, future growth is tepid. PBF has toyed in the past with the idea of becoming an insurer itself, but instead, they are working on some Middle East markets. This company continues to be at a crossroads.
On the subject of fertiliser stocks, We are positive about this space and have some exposure. Agriculture is a core sector and companies working on this will do well. It is also a tough sector because of tight government regulations. As of this quarter, we are seeing good YoY growth and EBIT growth in the companies we are tracking. Given the trend in falling raw material prices, the margins should slightly expand as well.
On Energy (Gas)
We do have some exposure in the Gas stocks as well. While stocks have performed well in the short term, one cannot predict the next short term due to the volatility in the energy prices globally stemming from the Ukraine-Russia conflict. Speaking of the recent results, the companies did see pressure from higher gas costs, which affected their margins anywhere from 13% to 18%. However, the market perhaps expects the global situation to ease, resulting in their short-term good performance.
On PSU Stocks
On the public sector enterprises, we generally avoid companies with significant regulatory overhangs. We also do not track who is holding which stock, except for making sure that promoters hold a substantial stake in the company. Given these two principles, we will put our money only on those stocks (even if they are public sector), which are exceptional in terms of our Roots & Wings philosophy i.e., consistently high Return on Equity and strong earning performance. Unfortunately, our models do not capture most public-sector enterprises.
Regarding the primary market, As of now, we do not track unlisted stocks. We also do not recommend investing in IPOs. Furthermore, we do not know the amount expected to be raised by IPOs in coming four months and cannot name a few.
We suspect that contrary to the recent all-time highs, the geopolitical and global recession bad news is still not over in Indian Markets – End Nov 2022. So our outlook as of now is stable. The Ukraine War is still raging, and one must continue to focus on companies with strong fundamentals. We are not capable of predicting short-term trends in the market, you must speak to your SEBI Registered Investment Advisor. Having said that, since the indices have run up of late, one need not expect further galloping moves in the near term.
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