Max Financial Services Ltd owns Max Life Insurance which is India’s first listed company focused exclusively on life insurance. Max Life is a joint venture with Mitsui Sumitomo Insurance of Japan. The company’s investor base includes marquee global financial institutions such as Baron, Vanguard, Jupiter, Norges, KKR, Aberdeen and Alliance Bernstein. The other entities in the Max Group are Max India which holds the Group’s healthcare, health insurance and senior living businesses. The Max Financial Services stock quoting at Rs 480 has risen in the last few weeks but is still a good buy for the next eight weeks time horizon for a 10% price appreciation on the cards. Investors can also look at stocks in the MSME, vehicle and housing finance areas, which are fundamentally sound and have good corporate governance. There are millions of MSMEs in India which contribute to 45% of industrial production and 30% to the services sector. Spread across the country, these MSMEs produce around 6,000 diverse products and services for not only the domestic market but for the global markets too. Despite many government schemes to promote this growth engine, adequate and affordable credit from the formal financial sector was a hurdle.
A study has revealed that private banks and NBFCs have been continuously strengthening their presence as lenders to the MSME segment. It also states that MSMEs account for about 23% of total loans in the country. These trends point to the immense potential that lies for the MSME financing sector. A large rating agency estimates that with an average loan size for housing finance companies in India at approximately Rs 30 lakh, the entire housing market is valued at over Rs 28 lakh crore. Houses built in the rural areas under two government schemes viz. the Indira Awas Yojana and the Pradhan Mantri Awas Yojana implies that the demand for rural homes is still largely unmet. On the urban front, the housing market is currently experiencing stagnancy in housing prices with five top cities in India witnessing a drop in home sales. This situation of lower property prices, coupled with lower interest rates, tax incentives on housing loans and the Pradhan Mantri Awas Yojana subsidy suggest that the time is ripe for acceleration in home purchases. Other factors that will drive the demand for housing in the near future are rapid urbanisation, a trend towards nuclear families and a major population below the age of 35 years. As interest rates continue to trend downwards on account of lower inflation and liquidity in the system, growth in the automobile sector is expected to bounce back, especially as customers prepone their purchases to avoid paying the anticipated higher prices that may result from BS-VI emission standards implementation from April 2020 onwards. India’s demographics and phase of growth suggest that there is a huge unfulfilled demand in the housing finance, vehicle finance and MSME finance space. These sectors have been financially underserved and completely neglected by the formal financial sector. As a result, their development has been stymied. The situation is fast changing as NBFCs, private banks and private equity funds have begun to flow into these sectors to tap their vast potential. They have begun to approach their target customers with innovative and customised lending products. The government and RBI are also making efforts to institute policy reforms that will facilitate lending to these segments. As a result, there has been a flood of new players. Although this market is vast enough to accommodate them, companies that have garnered expertise through years of experience will always enjoy a competitive advantage.
Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.