Low Penetration of Insurance in India

India is currently in an unusual state. Despite world’s second largest populous country and with a huge young population (~65% of population lies between 15-35 years age bracket), the inclination towards Insurance has been lopsided towards denial.

The recent article in Business Standard articulates this fact. The article states that Insurance industry in India has grown from 2.71% to 3.96% in the last decade. This figure becomes further astonishing when we consider General Insurance (which includes Health Insurance) where the penetration has gone up from 0.56% to 0.78% in the last decade.

The biggest reason behind this state of denial by people of India is lack of reforms in this sector. From reforms, I am not talking in context of bringing foreign firms in India and hope the wheel will turn on its own. Rather, what is missing is greater transparency, lack of accountability and pushing the sector on every nook of the country, just the same way banking and telecom made the inroads.

If we move back to 2003-2004, Insurance industry saw several Multi National Insurance firms entering Indian markets with various products, built mostly around ULIPs and Market based. But IRDA, which is the governing authority, did not manage the products offered by the private insurers.

The charges were exorbitant, and hence, returns sacrificed. The companies built big budgeted marketing strategies and products were pushed down investors’ throats. With the slump in 2008, the fund values of these policies fall drastically by as much as 60-70% in various schemes. IRDA never took any steps to curb the loot by the insurance companies. Though it has now acted through series of steps taken between 2010 and 2013, but by then, investors’ sentiments have been jolted.

Let us try to evaluate various factors behind this negativism towards Insurance and how the sector stakeholders can manage them:

Make Plans more transparent towards Risk & Return

The biggest problem that an investor faces before buying a plan is lack of clarity on what would be his risk and return on the investment? Though plan brochure speaks about it, but it never gives a clear picture on the kind of returns. We all can see various marketing SMS / Emails speaking about getting several crores by putting few thousand bugs every month!! But the investor is now much mature after being looted in last decade and hence, shows denial towards such plans. I feel what is required here is to clearly speaking about following in the plan brochure:

• What exactly are the charges towards providing Risk Cover?? It should not be “X” Rs. per “1000” of Sum Assured. It should clearly spell out in the terms of % of his premium amount. IRDA can design a sheet with various such details for the customer, which will be signed by the investor.
• How much percentage (%) of his premium going towards investing in various segments like Equity Markets, Bonds, etc?
• What are the commission charges paid by the customer to the agent / company?
• Is his Capital guaranteed?
• The Guaranteed Returns should be % of Premium amount and not Sum Assured, as various plans speak because that creates ambiguity.

Commission should increase with policy retention and not vice versa

Currently, huge chunk of commission is given on the first premium and then it gradually decreases with each year. This push agents towards hard selling by pushing the policy inside investors’ throat without considering whether he has the appetite to digest it? Thus, IRDA should make commission structure, just the opposite. The agents should receive less commission in initial 1/3 of the policy tenure and then a gradual increase. I am pretty sure that policy lapsation wil drastically reduced and agents would be actively involved with the customers towards policy renewals.

Stringent Regulations and Penalty Clauses for Mis-selling

The insurance in India is not ‘simplified’. The agents too command higher commission stating it is a complex product. But the ground reality is that 9 out of 10 agents even don’t know the basics of insurance. The examination is easy to pass. There are set of questions which is gulped down agents’ throat before sitting out for exam. He clears it without understanding risks & rewards and then becomes “puppet” in the hands of insurance companies. During training sessions, these companies give hard core marketing lessons, often mixing projections with real returns like a fine cocktail and then this cocktail is shared with investors. But like any other hard drink, it end up as an unhealthy product for investor’s investments. Thus what is required is a more stringent guidelines on companies as well as on agents towards mis-selling.

• Put the onus on insurance companies to write more vocally in policy brochures on whom to approach in case of mis-selling.
• Define the maximum time needed to resolve complaint.
• Make financial and other punishments more stringent on both insurance companies as well as agents.

Make Insurance Affordable and push it to every nook of the country

Insurance, though is inherent need of any person on earth, yet is not projected this way among the masses. It is still a “push” product as there is a general denial tendency among masses towards insurance. What is the need of the hour is “concentrated campaign” by both govt as well as insurance companies to promote the same, especially in the lower strata of the population where it is needed the most.

IRDA should ask every Insurance company to introduce a low-cost Insurance product for lower strata of the population. Also ask the companies to allocate atleast 20% of their marketing budget in promotion of these products for say next 5 years. Simplify the products and make it as easy to sell just like any other financial product such as Banking. This is only possible, if people start understanding “What is Insurance” and for the same, what is need of the hour is the educational campaign. Once people realize that Insurance as a product is as necessary as Bank account and there are plans which are available for say, as low as 100 Rs premium for a month / quarter, then I am sure it will gain widespread and we may achieve target like 20% of the population in next decade or so.

This is my view-point on this issue. if you have any comments, then kindly contact us or email us at pcj@growyourpaisa.com

Break out play in Yes Bank - 01 Sep 2013

Jai Ganesha!!

1) Yes Bank is India's newest and one of the fastest growing Private banks in India. In the last few months, the bank is in wrong news for all reasons - spat with ex-promoter's wife, RBI recent tightening measures have further dented the bank's profitability and global turmoil.

2) The stock has corrected by more than 60% in the last 3 months to 215. It has rebounded since then, and now trading at around 240. On looking at the charts for the last 5 days, one may see that stock is entering into narrow range and may consolidate (See fig below. Click to view larger image).

3)  But citing the volatility prevailing in the index as well as Bank Nifty, we are playing on the break-out in the stock. The break-out levels have been identified as 247 Rs on the upside and 236 Rs on the downside (See image below. Click to view larger image).

4) If the stock break-outs above 247 Rs, buy the stock with target levels of Rs. 255 and then 272 Rs. Keep a stop loss at 236 Rs.

5) On the downside, if Yes Bank breaches 236 Rs, sell the stock for target levels of 224 Rs and then 208 Rs. Keep a stop loss at 247 Rs.

Buy Syndicate Bank as it reaches its support zone - 29th July 2013

Syndicate Bank is among India's growing Public Sector Banks. The bank has shown some remarkable growth in the last few quarters and fundamentally, stands at very attractive valuations.

Price Charts

1) Technically, the stock has reached the strong support zone of 84-87 Rs and likely to show some support around it (See Chart below).

2) If it takes the support around this level, then we are likely to see a rebound which can push the stock up till 93 Rs. If that resistance level is breached, then we may see the stock reaching back to 101-103 Rs levels.

Nifty is close to a break out - 24th July 2013

1) Nifty has shown some remarkable progress in the last few sessions, despite adverse economic conditions in Indian economy as RBI tighten noose on financial system to protect currency.

2) Nifty, if corrects from the levels of 6080-6110 on closing basis and breaks 5950 on the downside, can actually then correct further down to 5550-5650 levels as this will confirm the heads & shoulders pattern made by the index (See chart below)

3) Though on the upside, if is able to breach 6190-6210, then can actually move further up to make new highs around 6400-6450. The break out above 6190 is very crucial as this is where the last top has been formed (See Chart below)

4) Amidst such environment, it is advised to buy a bull spread and bear spread strategy for the August series and wait for a breakout till 10th August.

5) Buy 5900 Put and Sell 5600 Put which gives a net outflow of 40 Rs and similarly, Buy 6300 Call and Sell 6500 Call for August series, again leading to net outflow of Rs. 30. The combined net outflow is Rs. 70 which translates to maximum loss of Rs. 3500. 

6) If it corrects, one may exit the bear spread strategy when Nifty reaches 5750. On the inverse, it is goes up, one may exit from bull spread strategy, if Nifty reaches 6420.

Sell Sun Pharma as it shows fatigue signs - 16th July 2013

1) Sun Pharma is India's leading Pharma company in India. The company enjoys the leadership position and demand highest valuations among Pharma stock fraternity.

Price Volume Analysis

2) The stock declined to 970 on June 16th and rebounded since then to close today at 1110 Rs (+14%) without any correction. RSI at around 72 indicates over bought situation (Chart 1)

3) Today though stock has shown fatigues. After making the highs of 1125 Rs today, the stock steadily declined to close at Rs. 1110.

4) Volume has too declined by 23% and Delivery volumes by 30% which also points to consolidation or some correction in the coming days.

5) On the technical charts, the stock shows some support around 1090 Rs and then 1068 Rs.

6) In the midst of it, we may Sell the stock at around 1105-1115 Rs with stop-loss around 1130 and target levels of 1090 and 1068 Rs where support level exists.

7) Derivatives traders can buy 1080 Put and Sell 1060 Put which gives risk to reward ratio of 1:3. As per today's closing price, one may earn maximum profit of Rs. 15 per share and maximum loss exists at 5 Rs per share.

Sell Hindalco as it reaches resistance zone - 11th July 2013

1) Hindalco is India's leading Metals company in India and the flag bearer of Birla group.

2) Today, the metal stocks including Hindalco have gained, as Fed Chairman gave a positive speech aiding stimulus for the next few months.

3) Though technically, the stock has reached a resistance zone where it is likely to face some resistance (See Chart below)

4) Hence, we are betting on this resistance zone to sell the stock on rise tomorrow. Hindalco can be sold around 103.5 Rs with stop-loss at 105.5 and target levels of 101 and 98.

Sell ONGC as derivatives indicate tremendous short positions - 11 July 2013

1) ONGC is India's leading Oil Exploration company and one of govt's "Maha-ratna" company.

Technical Analysis

2) It has corrected steeply by 10% in the last 10 days and has now trading below the short term (5 Day EMA) and long term (34 day EMA).

3) The stock has reached a minor support level from where it is expected to rebound by 2-3%. If it again resumes its downward journey, then we may see levels of 286 Rs. in this stock.

Derivative Analysis

4) The stock has added 8% in Open Interest today and is now standing at maximum Open Interest for the last one month.

5) It has added 6.7 Lacs shares in Open Interest in July futures. Besides, 1.4 Lacs shares have been added in 300 Rs call, 1.9 Lacs in 310 Rs call, 1.24 Lacs in 300 Rs. call. The premium for all three Options have declined by around 30% which indicates the levels of bearishness existing in the counter.

Considering all these factors, we may derive that we may sell ONGC on every rise. If the stock rebounds from the existing support of 296 and reaches 302-305, we may sell it for possible target levels of 286. On the up side, the stop-loss can be maintained around 312.

Buy Exide as volume, Open Interest and Price increases - 08th July 2013

1) Exide Industries is RPG group company, based out of Calcutta. The company is the leading manufacturer of Auto and Industrial batteries.

Price & Volume Analysis

2) On Friday, the trading volume in the stock has increased by 84%. It is also up by 58% from one week average. The increase in volumes have backed by increase in stock price by 1.5% which is a positive development for the stock.

3) Delivery Volumes have also increased by 85% which further make this rise in stock price more worth while.

Derivative Analysis

4) Open Interest in the stock has increased by 9.5%. 1.6 Lacs new shares have been added in Open Interest. Total Open Interest in the stock stands at 19 Lacs new shares.

Chart Analysis

5) On the charts, there exists a strong support around 121. It has bounced back three times from 20th June and has broken the intermediate top made post that. The support for a buy position can be placed below that.

6) On the upside, the first level of resistance comes at 126 where previous support levels exist. Once this level is breached, the next level of resistance arrives at 131 where intermediate top exists.

Trading Strategy

7) Most indicators above indicates short term uptrend in the coming days. One may buy Exide around 123 with stop-loss at 120 and target levels of 126 and 131.

Buy Cairn India as it takes support - 07th July 2013

1) Cairns India is India's leading private Oil Exploration company. The company has been recently acquired by Vedanta group.

2) The share has not performed as well as analysts all across the world expected it to. Though, it is still maintained on the Buy list of many brokerage houses.

Volume Analysis

3) On Friday, the stock has shown some decline (-0.82%). Though, the volumes were 50% of the weekly average volumes which indicate no major concern in the stock and indicates some kind of consolidation happening in the stock.

4) Delivery Volumes too have been 50% of the weekly average indicates the similar trend to trading volumes.

Derivatives Analysis

4) In the derivatives side, the futures have added 4% new Open Interest which can be expected as it is just the first week of the series. Usually Open Interest increases till the 2nd week of the series.

5) 290, 300 and 310 Strike Calls have seen some Open Interest build-up where one may put short term ceiling on the upside.

Chart Analysis

6) On the charts, the stock seeing taking some support on the short term line which is a positive indication for the stock. 

7) After rebounding from 275 Rs levels, the stock has taken some breather around 290-295.

Trading Call

Collating all the analysis, it is advised to Buy Cairns India around 291 with stop-loss placed at 285 and target levels of 302. Derivatives traders can also adopt straddle strategy buying 290 Calls and Puts with combined premium of 14 Rs. If the stock breaches 285 on the downside, can then aim for 275 Rs where it has a long term support.

Buy Reliance Capital as it picks momentum - 05th July 2013

Reliance Capital - India's leading NBFC and a part of Anil Ambani's group is among the most volatile stocks in Nifty Index.

Yesterday, the stock has added fresh open interest of 14.5 Lacs shares (around 16%) with increase in price by 5% and and volume increase of 1.4 times.

On the charts as well, it shows the momentum pickup as the stock breaches both long and short term averages.

On the options side, Put writing is seen in 340 Strikes (around 1 Lac shares have been added in it) which make a strong base around 340.

Considering all these factors, it is recommended to buy Reliance Capital around 360 with target levels of 380 and 403 where two levels of resistance are seen.

Have a good trading day!

Buy PSU Banks like Bank of India and Sell Bank Nifty

The banking stocks have taken a tremendous beating in the last one month. The maximum brunt is taken by PSU Banks whose stocks capitulated by as much as 25%. Few of them are mentioned below:

• Allahabad Bank - 28%
• Bank of India - 24%
• Union Bank - 22%
• PNB - 18%
• Bank of Baroda - 17.5%
• SBI - 8%

Private Sector banks, though, have performed relatively better. The fall for these banks were in the range of 5-10%.

Considering the given scenario, it is recommended to buy Bank of India and Sell Bank Nifty. The reason why Bank Nifty is considered because the index has equal weightage for Private Banks and PSU banks. So if PSU banks outperform private banks, the chances of getting favorable returns are high. 

Also the deviance between Bank of India and Bank Nifty is huge and this is likely to be filled in the coming days.

Moderate Risk users can adopt the following strategy:

1) Buy Bank of India 230 Call and Sell 240 Call.

2) Buy Bank Nifty 11300 Put and Sell 11000 Put.

The given strategy comes with maximum loss scenario of 6000 Rs and maximum profit of 12000 Rs.

Wishing you a happy trading!!

Sell Idea as it reaches resistance zone - 30th June 2013

1) Idea - India's leading telecom company has been the most steady performer among the large telecom stocks.

2) Though, the stock is now facing resistance around 148 levels. It has a long term resistance around that level. It has just been fell down from those levels around a week back (See chart below)

3) Also, the stock has seen steep up rise since April 2013. It has gone up by around 30% from those levels. This gap is likely to be filled.

4) Accumulating all these factors, one may go short around 144 with stop-loss at 148 and target prices of 137 and 131. 

Sell Shriram Transport Finance around 730 with stop-loss of 745 and target levels of 700 and 685.

1) Shriram Transport Finance had been a favorite stock for many institutions for last few months on the backdrop of Banking license which it expects to get from RBI next year.

2) The stock has seen correction with the market in the last few weeks. On Friday though, fresh short positions have been observed.

3) Open Interest has increased in both June and July futures contracts. The trading volume and delivery volumes have increased by 80% and 90% respectively on Friday. Around 50 thousands shares have been added in July and August Futures contracts on Friday.

4) On the charts as well, the short term moving average line (5 Day EMA) has broken long term 34 Day -EMA which indicates weakness. 

5) The stock, though, may take a minor support around 720 and can bounce back to 725-730 Rs levels. These levels can be taken advantage of to sell the stock with stop-loss of 745 and target levels of 700 and 685.

Institutional Activity observed in GAIL but direction not clear - 24 June 2013

1) GAIL - India's leading gas exploration company in India - is a part of India's benchmark Index - NIFTY.

2) In the last one week, this stock has taken some major addition in Open Interest which indicates some major positions being taken by Institutions.

3) These positions are taken in July and August Futures. Both the futures contracts have added 10 Lakh shares in Open Interest on Friday. Total Open Interest stands at 20 Lakhs for July futures and August respectively.

4) It is advised to go for Straddle strategy where one may buy both 290 Calls and Puts for the stock for July / August and hold till 10th July.

5) Some major announcement is expected, which is usually precluded by such institutional activity. 

Contra Strategy - Buy Apollo Tyres around 60 with target of 65 Rs and stop-loss of 58.5

1) Apollo Tyres, after announcing the acquisition of Coopers tyres in USA has become the darling stock of shorters. From the levels of 90 Rs, it has declined to 61 Rs in a matter of week or so.

2) The bearish approach is due to the leverage that the company is taking to make this acquisition. Post acquisition, the debt ratio will be 1.9 which is high, considering the market sentiments now a days.

3) But technically and fundamentally, the correction is overdone now and one may see a bit of consolidation around the current levels. This is evident in today's trading, when stock managed to stay afloat among difficult conditions.

4) Derivatives data also indicate shorts being covered. Futures Open Interest has actually declined by 63 Lakh shares which is a positive indication.

5) One may create a favorable strategy in this counter by buying around 60 tomorrow morning and put up a stop-loss of 58.50 and target levels of 64-65 in next week or so. The risk to reward ratio is very attractive for the stock (at 1:2).

Ranbaxy - Sell on rise and buy on dips strategy - 19th June 2013

1) Ranbaxy has been in the news for several wrong reasons in the last few days. US Drug Authority ban, Daichi (its promoter) blame on previous promoters for company's mis-management has done no good for the company. Also, recent speculation that US Drug Authority (USFDA) may inspect some other plants of Ranbaxy put further question marks on company's future growth prospects.

2) Derivatives data for yesterday indicate huge build up on Short side. Around 4 Lacs new shares have been added on the futures side. Also, tremendous Put accumulation at strike prices of 300, 290 indicate the kind of levels traders have been anticipating in this counter.

3) Though technically on charts, a long term support has seen between 320-340 Rs range on 10-year chart. Also the stock has corrected steeply twice in the last few months. Further correction would require much larger force from the bears than the previous two correction. (View Chart)

Support Levels

Resistance Levels

4) Also, the shorts accumulated in derivatives segment, may go for cover up before expiry which may take the stock upward.

5) On the upside though, a resistance exists around 375-380 levels. The stock consolidated around these levels in the last 3-4 days before correcting again. These levels are the perfect resistance levels for the counter.

6) Hence, considering all bad news already open in the market, the further downside may be limited, though, upside too is not much to be excited upon, given the fundamental reasons which prompt exit at every rise in the stock.

7) Hence, we recommend buying the stock in the range of 335-340 Rs with stop-loss of 315 and target levels of 360 and 375. Similarly if it goes up from here, then one may sell it in the range of 360-365 Rs with stop loss of 385 and target levels of 340 and 330.

8) F&O traders can go sell both 300 Put and 380 Calls for June expiry and exit if it goes in-the-money.

Sell IDFC on rise around 142 with stop-loss at 148 and target of 136 and 131 - 11th June 2013

1) IDFC, govt backed infrastructure financing organization, has been correcting from 158 Rs levels to 140 levels today.

2) This selling though, seem not stopped right now.

3) Derivatives data indicates fresh call writing in 140 and 150 strikes. 1 Lakh shares in 140 call and 1.2 Lakh shares in 150 Call have been added. Premiums too have declined.

4) IDFC July futures have too seen strong build up on short side. The July futures have been trading at the discount to June futures which indicate short build up.

5) On the charts as well, the stock has broken two key support levels (Ref chart below) which indicates strong resistance on the rise.

6) Sell the stock on rise around 142-143 Rs levels with possible targets of 136 and then 131.

REC Ltd - a short sell with target levels of 210 and 202 and stop-loss of 228.

1) REC Ltd is a govt undertaking and India's leading company into Power transmission into rural areas.

2) The stock has seen an uptick of 7% over the last one month, coinciding with upside in overall equity markets. But this rise is not well paced with its peers which have shown more strength. For ex. PTC and NHPC have shown rise of 10% in the last one month.

3) The stock has now corrected from an intermediate high of 225 to 215. The level of 225 is crucial for the stock as the downward trend line of peaks made in the last one year falls at this level. Also 34 Day EMA, 5 day EMA falls at this level. So it seems a crucial resistance zone for the stock.

4) In yesterday's trading (22nd April 2013), the stock has seen increase in Open Interest by 12% and price too fallen by 1% which further indicates weakness in the stock.

5) Basis these criteria, we recommend sell in the stock with stop-loss at 228 (above 225 resistance zone) and possible targets of 210 and 202.

Wishing a profitable trading!

Buy Maruti Put Options for May (Strike Prices 1450, 1460, 1480 and 1500) Yen based benefits overstretched - 22nd April 2012

1) Maruti Suzuki has seen a tremendous rise of around 20% (maximum among its peers) in the last one month due to bounce back in the equity markets and decline in Yen against all major global currencies including Indian Rupee. The yen depreciation has provided benefits in terms of Interest expenses as payout would now involve paying less in Rupee terms. (See 1 Year Yen-Indian Rupee graph)

Yen to Indian Rupee graph (1 Year)

Maruti Suzuki Price Graph (1 Year)

2) On the flip side, domestic auto market is going through its worst slowdown. After a decade or so, the auto sales have declined last month. The amount of freebies offered by the companies failed to bring enthusiasm among car buyers.

3) Few hopes that may bring support to the car makers are interest rates cut by RBI in May 4 meeting along with fall in commodities including crude which may bring car buyers back to the buying spree.

4) In the context of it, we feel that the current rise in stock prices are ahead of fundamentals and anticipate correction. RSI which indicates sentiments in the stock is trading above 80 which indicates over-bought scenario.

5) One may buy Maruti Put options for May for Strike Prices 1450, 1460, 1480 and 1500. One may book loss if Maruti closes above 1620. The profits can be booked at the levels of 1480 and then 1420.

Wishing you a profitable trading!!!

Asian Paints is a sell on rise - 11th March 2013

Asian Paints - India's premier paint manufacturing company becomes a candidate for sell due to following reasons:

1) In 5Day chart, the stock is reaching another peak around 4830 from where it is likely to correct. (See Chart 1). The support in that case arrive either at 4725 and then at 4625. Also, RSI close to 80 indicates overbought levels.

2) In the daily chart, one may see that the chart is rising steeply from 4250 levels (28th Feb) with virtually no correction (Chart2). On joining the peaks, one may perceive another peak at around 4830-4850 Rs range. The support in that case comes at 4450.

3) Open Interest is up by 21% and price is up by 2% on day-to-day basis which is a bullish sign for the stock. But we are taking the bet to sell on rise because we have a view that it will soon enter into its resistance zone around 4850 from where it is likely to correct to 4650 Rs.

4) Hence, one may recommend selling stock around 4830-4850 Rs with stop-loss at 4950 and target levels of 4650 and 4400 Rs.