Moneycontrol Pro Panorama | Did Diwali make you choose wisely?

Diwali picks by brokerages are already doing the rounds and the equity markets seem excited and our Muhurat Trading page captures all this and more.

Dear Reader,

The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of. 

If the air quality in Mumbai and Delhi are to go by, the weekend has witnessed a sizzling Diwali celebration. From firecrackers to sweets to the best stocks to buy this Diwali, we have been spoilt for choice when it comes to spending.

Choice is the key word. Choice is a challenge and too many options make it into a complicated dance. This is true when it comes to financial products and even for life decisions. Should you binge on your desires today in festive finery or should you save and invest for a brighter Diwali a year later? The former would mean a trip to the mall while the latter would mean going online to purchase an insurance policy or invest in a financial product.

We will know what India did this Diwali perhaps a month or two later as economic data trickles in. But analysts at Nomura point out that the industrial output growth data show cracks in consumption. “Consumer durables production has been underperforming other sectors, with only 1 percent y-o-y growth in September vs 5.8 percent in August,” they point out in their report. Read our piece on what industrial output says about consumption to know more. The straight point is that consumption isn’t rosy as producers didn’t crank up output in anticipation of festival demand. That means they knew that demand wouldn’t match the robustness of the years before. Indians won’t binge like they used to. If you read our Pro Weekender by Manas Chakravarty, you wouldn’t be in the dark about consumption.

Does this mean that the average Indian has become more savings or investment oriented? Is the householder buying insurance or stocks? Diwali picks by brokerages are already doing the rounds and the equity markets seem excited and our Muhurat Trading page captures all this and more.

What we want to leave you wiser with is insurance today.

Insurance is a topic that instantly inspires one to either yawn or resign to a tedious explanation which wouldn’t light up any understanding in our brains. Yes, it is a trifle esoteric, but it is also essential to survival. The aversion to insurance or worse its wrong appropriation as a savings product has been a bane for Indians.

For decades, life insurance was sold by the friendly uncle who came just to scare you to buying one policy. What will happen to your family if you die tomorrow? No matter how rational a householder, the person cannot instantly dismiss the probability of demise. If fear didn’t work, bribery would. A standard sales line is this: policy will ensure your savings grow -- insert random unbelievable number here -- much higher than other products. The worst lines were that insurance will double your wealth.

This process has now evolved into involving financially literate advisors who suggest insurance policies that deliver on the original purpose of their existence: insure your life against the risk of sudden demise. But the approach to selling insurance hasn’t changed much. Bank executives pretty much belt out the same tune our uncles did with us earlier.

It is no wonder that people do not stick with their premium payments for a long time. Our Chart of the Day details why persistency ratio, the metric that shows what proportion of policyholders ditch the life insurance company and how fast, hasn’t improved much in decades. The weak link is the life insurance whale, Life Insurance Corporation of India (LIC), that reports a 13^th month persistency ratio of 71 percent. A third of its policyholders stop paying after the first-year premium itself. The proportion of customers leaving LIC after the fifth year of policy is even worse at 50 percent.

Savvy private sector life insurers have far better ratios, but not necessarily impeccable. If policyholders do not stick with insurers, they both lose. Policyholders obviously lose the benefit cover. For insurers, profitability hinges on how long their policyholders stick with them because the costs of selling and servicing an insurance policy are upfront while the benefits are staggered over the life of the policy for the insuring company.

India’s life insurers have had a brilliant profitability run fuelled by growth after the pandemic’s health crisis made Indians realise the importance of insurance. But this streak is now perhaps at its end. Life insurers have indicated profitability margins may normalise from here on. Business growth, though, is still going great guns. Kotak analysts point out that annualised premium equivalent grew a neat 12 percent in October for the industry, but private life insurers reported a cool 21 percent increase. LIC hardly grew and the company’s profits for July-September disappointed. Life insurers are looking at newer pastures of growth such as tier-2 and tier-3 cities and LIC is cleaning up its act by pushing more simple term insurance.

But making us choose insurance for the right reasons is not an easy task. How insurance is sold needs to be overhauled to make us choose wisely, if not in this Diwali, perhaps next.  

Investing insights from our research team

Ashok Leyland Q2 FY24: Demand, cost tailwinds augur well

Eicher continues to cruise fast

M&M Q2 FY24: Strong momentum in the auto segment

Muthoot Finance Q2: The best is certainly behind

Hindalco Industries: All-round performance in Q2FY24

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MC Pro Inside Edge: Jeffrey Archer twist for Honasa, high flying Mugul, D-Street’s toll collector

Moneycontrol Pro Market Outlook | Expect a strong muhurat week

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The case for export of Indian workers to Taiwan and Israel

IPEF no substitute for India’s stuck trade pacts

Private equity faces a reckoning (republished from the FT)

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Telangana Elections 2023: KCR’s search for a backup safe seat lands him in another stiff contest

It’s time for the CAG to undergo a performance audit

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Taliban Redux? The Americans may one day have to negotiate with Hamas too

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Personal Finance

How to clean up your portfolio this Diwali? Sundeep Sikka, CEO, Nippon MF, has a 3-step move

Tech and Startups

Festive cheer for e-commerce driven by premiumisation of purchases, say industry experts

Technical Picks: NMDC, ICICI Bank, USD-INR, NTPC, Guar gum and NMDC
(These are published every trading day before markets open and can be read on the app). 

Aparna IyerMoneycontrol Pro