The key benchmark indices ended higher for the week with the S&P BSE Sensex gaining 336 points to close at 39,067, while the Nifty 50 index gained 112 points to close at 11,754. The prime reason for the stock market to go up was softening oil prices, with investors cheering positive earnings updates from Axis Bank and Tata Steel. Going forward, the only thing on investors’ mind is the outcome of the elections as it will decide who will form the new government at the Centre. India VIX, which means the immediate 30-day volatility in the market is expected to remain at elevated levels for the month of May. Hence, the stock market should remain highly volatile for the next 8-10 days, with the Nifty likely to move 150-200 points in both the directions. The domestic stock market would be closed on Monday, 29 April on account of general elections in Maharashtra.
General Insurance Corporation (GIC Re) is the country’s largest reinsurer by gross premium, accounting for over 60% of the premiums ceded by Indian insurers to reinsurers. India has a very low penetration of general insurance in the domestic market, throwing up great investment opportunities. The total size of the reinsurance market in India is about Rs 45,000 crore and is growing at a fast pace.GIC Re has been ranked 10th globally among global Reinsurance Groups by S&P Global Ratings. After the non life insurance sector was detariffed in the country, most of the insurers competed with each other on insurance premium rates to gain market share. They were offering huge discounts to corporate clients, especially in certain manufacturing segments. But now after enjoying a decade of low rates, certain companies buying insurance cover for their plants, machineries and properties will see a three-nine fold increase in the insurance cost. Henceforth, all non insurance companies would have to add the management cost to the IIB identified premium rates and quote the same to their corporate clients. This was done by GIC Re as the company was suffering due to huge claims from corporate clients. Now with the new rate, some sanity will prevail in the insurance market. This will help GIC Re to improve its combined ratio and profitability going forward. With the expansion of the rural economy and revival in private sector investment plus government initiatives like Ayushman Bharat should provide continued growth for the reinsurance sector. GIC Re posted a huge decline in its net profit for the December 2018 quarter on account of higher provision for taxation and doubtful debt. The company has a total exposure of around Rs 791 crore in IL&FS and hence has made a tax provision in its books. EBIDA stood at Rs 1,040 crore in December 2018 as against Rs 787 crore for the same quarter of last fiscal. The GIC Re stock quoting at Rs 244 on the Indian bourses is a good buy, with a 50% price appreciation in the next 18 months’ timeframe.
Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.