kotak life insurance
After surviving the global turmoil of 2008, Indian equities are trading at attractive valuations, says Vikram Kotak , chief Vikram Kotak investment officer, Birla Sun Life Insurance. He is sanguine that the rally in the markets will continue , as insurance companies are likely to invest large sums of money in the market. In an interview with ET , he says one should look out for the impact of the stimulus package and RBI’s policy stance for direction. Excerpts:
India has been among the best performing markets over the past several months. So is the worst behind us?
The markets have come a long way since March 2009 and valuations are no longer very compelling. Stocks seem almost fairly valued in many sectors. The combination of surprisingly strong economic news and policy settings is a big catalyst. This may continue to drive equity prices higher. Markets are likely to deliver above average returns over the next few years. The improving risk appetite and increased capital flow into India will ensure sufficient liquidity flow into the country.
India is in a sweet spot due to two key reasons, domestic demand-driven economic expansion and emergence of strong domestic institutional investors. As of now, retail investors are yet to totally return to the markets. The FIIs, however, have been furiously buying in India, they have almost 85% of what they sold in the financial year ended March 2009. The rally is expected to continue as insurance companies are likely to invest approximately $1.3-1 .5 billion a month till March 2010.
Is the rally in global equity markets pricing in full fledged recovery?
While the economic recovery has been generally priced into markets, investors appear to be discounting an unusually weak recovery in countries such as the US that have lagged the global recovery. Yet, the US is exhibiting all characteristics of a classic Vshaped economic recovery. The biggest risk is not global economic recovery faltering or slowing down, but the speed of markets to recognise it. I think recovery in the US and developed world is unlikely to falter although it will be slow recovery.
With recovery in place, what kind of policy response are you expecting from government and the RBI?
The government, I would understand, is facing a dilemma about continuing with the stimulus package. The decision will be a key variable for the speed of recovery. Two factors to watch out for are: will this government-driven recovery translate into sustainable private consumption as early as possible and RBI’s policy on interest rate visa-vis growth going forward. The RBI faces a challenge on calibrating interest rates maintaining growth momentum and managing inflationary expectations. I think India will be first to tighten the policy rates, and will be followed by emerging Asian countries in the first quarter of 2010.
While choosing a unit-linked insurance plans (ULIP), how should one approach the choice of fund options?
It is critical to understand the nuances of long-term savings and protection. ULIPs provide a very good opportunity to plan for the long term. The first thing that one needs to do before selecting a plan is to set a financial goal, retirement, children’s education or buying a house. Based on the defined goal, one can choose from a variety of fund offerings that provides long-term capital appreciation along with risk cover. Both pure equity and fixed income funds offer long-term capital appreciation, equity offering higher returns given the inherent nature of risk one takes. ULIP also provides blended fund option, investing in both debt and equity, thereby giving policyholder a choice of products depending on his risk profile.
Is fresh money coming to ULIPs? What is the status of traditional plans?
Insurance industry is showing healthy growth in new business and renewal premium income. There is a clear preference for investment in equity over debt; almost 70% of incremental flow is into equity funds. Clearly improved education and financial literacy backed by under investment in equities are the key reason why we continue to see more preference towards equity investments. Traditional plans are integral part of insurance business and we will continue to see new products on traditional segment on ongoing basis.
After surviving the global turmoil of 2008, Indian equities are trading at attractive valuations, says Vikram Kotak , chief Vikram Kotak investment officer, Birla Sun Life Insurance. He is sanguine that the rally in the markets will continue , as insurance companies are likely to invest large sums of money in the market. In an interview with ET , he says one should look out for the impact of the stimulus package and RBI’s policy stance for direction. Excerpts:
India has been among the best performing markets over the past several months. So is the worst behind us?
The markets have come a long way since March 2009 and valuations are no longer very compelling. Stocks seem almost fairly valued in many sectors. The combination of surprisingly strong economic news and policy settings is a big catalyst. This may continue to drive equity prices higher. Markets are likely to deliver above average returns over the next few years. The improving risk appetite and increased capital flow into India will ensure sufficient liquidity flow into the country.
India is in a sweet spot due to two key reasons, domestic demand-driven economic expansion and emergence of strong domestic institutional investors. As of now, retail investors are yet to totally return to the markets. The FIIs, however, have been furiously buying in India, they have almost 85% of what they sold in the financial year ended March 2009. The rally is expected to continue as insurance companies are likely to invest approximately $1.3-1 .5 billion a month till March 2010.
Is the rally in global equity markets pricing in full fledged recovery?
While the economic recovery has been generally priced into markets, investors appear to be discounting an unusually weak recovery in countries such as the US that have lagged the global recovery. Yet, the US is exhibiting all characteristics of a classic Vshaped economic recovery. The biggest risk is not global economic recovery faltering or slowing down, but the speed of markets to recognise it. I think recovery in the US and developed world is unlikely to falter although it will be slow recovery.
With recovery in place, what kind of policy response are you expecting from government and the RBI?
The government, I would understand, is facing a dilemma about continuing with the stimulus package. The decision will be a key variable for the speed of recovery. Two factors to watch out for are: will this government-driven recovery translate into sustainable private consumption as early as possible and RBI’s policy on interest rate visa-vis growth going forward. The RBI faces a challenge on calibrating interest rates maintaining growth momentum and managing inflationary expectations. I think India will be first to tighten the policy rates, and will be followed by emerging Asian countries in the first quarter of 2010.
While choosing a unit-linked insurance plans (ULIP), how should one approach the choice of fund options?
It is critical to understand the nuances of long-term savings and protection. ULIPs provide a very good opportunity to plan for the long term. The first thing that one needs to do before selecting a plan is to set a financial goal, retirement, children’s education or buying a house. Based on the defined goal, one can choose from a variety of fund offerings that provides long-term capital appreciation along with risk cover. Both pure equity and fixed income funds offer long-term capital appreciation, equity offering higher returns given the inherent nature of risk one takes. ULIP also provides blended fund option, investing in both debt and equity, thereby giving policyholder a choice of products depending on his risk profile.
Is fresh money coming to ULIPs? What is the status of traditional plans?
Insurance industry is showing healthy growth in new business and renewal premium income. There is a clear preference for investment in equity over debt; almost 70% of incremental flow is into equity funds. Clearly improved education and financial literacy backed by under investment in equities are the key reason why we continue to see more preference towards equity investments. Traditional plans are integral part of insurance business and we will continue to see new products on traditional segment on ongoing basis.
