ADVERTISEMENT

Indian Insurers Among Jefferies’ Long-Term Growth Stories In Asia

Jefferies added SBI Life and HDFC Standard to its long-term portfolio in September 2019.

Chess (Source: BloombergQuint)
Chess (Source: BloombergQuint)

The Indian insurance sector remains one of Asia’s better long-term growth stories, according to Jefferies, even as the centre announced a new tax structure shorn of incentives towards exemptions like purchasing insurance policies.

The Narendra Modi-led government, in the Union Budget 2020, offered a lower—but optional—income tax rate on various slabs for those willing to forgo certain deductions and exemptions. That came months before the financial services firm added SBI Life Insurance Co. Ltd. and HDFC Standard Life Insurance Co. Ltd. to its GREED and fear Asia long-term portfolio (excluding Japan) in September 2019.

Among other measures, the government abolished the dividend distribution tax and shifted it to the hands of investors. The Budget, however, failed to offer relief to companies by not doing away with the long-term capital gains tax on the sale of equity shares. It also announced that it would sell part of its shareholding in Life Insurance Corporation of India.

The report said there was a general lack of measures that might convince investors that the economic cycle is poised to turn up, including an Indian version of TARP, or troubled asset relief programme.

Here’s Jefferies take on the measures in Budget 2020:

  • Modi government has shown no appetite till now for the sort of bailouts that would undoubtedly please the stock market.
  • Lack of details on how to address the issue of 1,500 “stuck” residential property projects.
  • Greed and Fear has no confidence that an alternative asset management arm of a state-run bank is the right vehicle to run a distressed property fund.
  • Lack of help for the mortgage sector, where there had been hopes of an increase in tax deductions.
  • No help for the struggling automobile sector where sales in 2019 were down 14 percent year-on-year.
  • Increase in import tariffs on electronics, electric vehicles, and other goods to combat “dumping” and promote “Make in India”.
  • Customs duty for some electrical appliances and mobile phone circuit boards will be raised from 10 percent to 20 percent, while the duty on electric vehicles will be increased from 25 percent to 40 percent for imports of completely built bus and trucks. This is a reminder that India Inc. has not made much progress on Modi’s “Make in India” manufacturing agenda introduced in 2014.
  • Indeed, the manufacturing sector’s share of Indian nominal gross value added has declined from 17.1 percent in FY16 to 15.9 percent in the year to September 2019, the lowest level since FY71.

The Silver Lining

The report also pointed out positives to the Indian economy.

  • Indian manufacturing PMI rose from 52.7 in December to an eight-year high of 55.3 in January, while the services PMI rose from 53.3 to a seven-year high of 55.5.
  • The small- and mid-cap indices are also up by 6.9 percent and 6.7 percent so far this year, respectively.

The report said that it maintains a reduced ‘Overweight’ rating on India in the Asia Pacific region (excluding Japan) relative-return portfolio.