September 2017


Today I want to Share a Secret with you. A Secret that will help you successfully Invest in the Market. Lately Markets have been in a strong up move and a lot of people ask me as to what i think about the direction of the market. To be honest, there are only a few people who i know who can predict the market but the best traders React rather than Predict.

At Stallion Asset we Strongly believe in Data, infact we don’t have a television in office. The Reason of this Blog is not to criticize television but to tell you that in the short term and the long term, data suggest that there is only one Independent factor that you should track very Carefully but i guarantee you that you don’t track it yet. Believe me after reading this blog, it will change the way you think.


The Chart Below is a 23 year Chart of MSCI India & MSCI Emerging Market Index from 1992 to 2014

Shocked? Surprised? Impressed? looking at the Similarities.

We used 1992 as base year as that is the year where FII’s were allowed to Invest in Indian Markets. The Indian Markets have exactly the Same Patterns as MSCI Emerging Market Index for last 23 years.  Let me Repeat, this is not a 2-3 Month Chart but a 23 year Chart of MSCI EEM and MSCI India. We in India worry so much about Rainfall, IIP and other things but actually its Global market which matter’s the most.


What is the MSCI Emerging Market Index?

The MSCI Emerging Markets Index captures large and mid-cap companies across 24 Emerging Markets (EM) countries. With 842 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country.

India & All Emerging Markets move in Tandem, want more proof of it?

The Biggest Event of the Decade in the Indian Economy has been Demonetization right ? The below is a 2 year chart of MSCI India & MSCI Emerging Market that will help you understand that Domestic Factors have only a limited effect on the Index.

If you see the Last 2 year Chart the Patterns of MSCI India & MSCI EEM have remained the Same even after demonetization which was an India only event.

The thing is that Markets are Global & this can be Statically Proven by the Below chart with the Help of Correlations.

Correlation of 83% between MSCI Emerging Market and MSCI India is of extreme significance and is higher than that of HDFC & HDFC Bank clearly showing the strength in the Correlation. The above chart shows that 69% of Movements in Indian Markets can be explained by just one factor i.e. the MSCI EEM.


Sector Performance- We have successful proven that Indian markets are heavily correlated with Foreign markets but domestic news flow in Indian Market helps us understand which sector will outperform or underperform, but overall markets are heavily influenced by Emerging Market Index.


This Time its Different – These are the 4 most dangerous words and a lot of Guys may argue that this time its different & it is domestic money which is driving the market rather than FII Money, but believe me FII’s own 21% Stake in BSE 500 Companies, whereas mutual funds own just 5% and its never different.


Conclusion – In God we trust, but everyone else should get us data. The Information presented helps us give less weight to noise about local & Random factors which explain only 30% of Indian Stock Market movements but give more weight on Emerging Market Index. The Secret has been hidden for many years and hopefully will no more be a secret anymore.

Watch the Video Now for Full Presentation & better Understanding of the Topic.

Last week we Attended the Analyst Meet of ICICI Lombard which will be India’s First listed General Insurance company.

The trade here is similar to the Private banks as Huge Opportunity size exist plus shift in share from public sector companies to private sector companies.

These are the 7 Most Important things you Need to Know About ICICI lombard & the General Insurance Industry.


Factor #1 – Opportunity Size – Industry Growth + Shift from Government companies to Private Companies. – The Total Premiums Collected by Non-Life general Insurance companies was 1.28 Lakh Crores in 2017. The Industry is Poised to Grow at 15-20% for the foreseeable future as penetration of Insurance is very low & Premium Collection for Non-Life Player as a Percentage of GDP in India is 0.77% v/s 2.75% as global average. The Non Life Insurance has grown at 17% for last 15 years, and the trend of 15-20% growth is expected to continue for the foreseeable future. The Market Share of Public Companies has been shrinking every year and this trend is expected to continue. Private Companies got License in 2000-01, and now command almost 50% of Market Share. The Trend of market share shift is expected to gain momentum as Government companies have started to post losses and incapable to invest further.


Factor #2 –  About the Company –  Market Share & Premiums – The Company is a clear cut leader in all Segments of the General Insurance Business. Its Rank 1 across segments like motor Business with 19% Private Market Share,  Health & Accident Insurance with 15.4% Private Market share, Crop Insurance with 22%Private market Share, Fire with 16.6% Market Share. Its is also Ranked 1 in Marine with 26% Market Share.  In Financial Year 2017 it sold a whopping 1.7 Cr policies with about 10% policies online, and commands an Overall Private General Insurance market share of 18%.


Factor #3 – Growth in Premiums – 2017 was a Golden year for the General Insurance Industry as premiums grew 32%, fastest in last 15 years as the share of Crop Insurance Increased from 6% to 16% due to Pradhan Mantri Fasal Bima yogana. Ex Crop Insurance the Growth was 18% for the Industry in FY2017. ICICI Lombard premiums have historically grown 1.2-1.5x faster than Industry as the leader in the Private sector takes market share from Government Insurance companies. We believe that 15-20% growth is sustainable in ICICI Lombard for the foreseeable future.



Factor #4 – Why Customers Love ICICI Lombard – The first thing a customer looks at before buying the Insurance is how fast is the claim settlement if a liability occurs. ICICI has broken all records as far as Fastest Claim settlement goes & its well above Industry Standards. The Claims Settled within 30 days for FY2017 stands at 94.4% for ICICI Lombard, 82.2% for Bajaj Allianze, 83% For HDFC Ergo, 42% For IFFCO Tokyo, 52% for SBI General.  ICICI has created high level of trust among its policy holders, whereas the Industry has lagged clearly suggesting high management efficiency.

The Claim Settlement  is better in Healthcare where ICICI Lombard settles 99.7% claims within 30 days, whereas the Industry is lagging behind at 80-95 days.


Factor #4 Profitability – Combined Ratio – Combined Ratio is the Most Important Ratio for Understanding Profitably of a Insurance Business. Combined Ratio is basically  Expenses Incurred for selling the Policy Plus Loss on claims divided by Revenue.  A ratio below 100% (Greater than 1) indicates that the company is making underwriting profit while a ratio above 100% means that it is paying out more money in claims that it is receiving from premiums. Even if the combined ratio is above 100%, a company can potentially still make a profit, because the ratio does not include the income received from investments.
For Example if a Company received Premium of 200, the cost of selling the policy is 30 and the claim which occur are 100, the combined Ratio Would be 65%.

We believe this is the Best Way to measure the success of an Insurance company because it does not include investment income and only includes profit that is earned through efficient management.

ICICI Lombard has a Combined ratio of 104.1% in FY2017, whereas private companies on average have combined ratio of 107.1%, whereas the whole industry including public sector companies had a Combined Ratio of 121.7%. Bajaj Allianz had the best Industry Combined Ratio of 97% in FY2017.


Factor #5 -Solvency Ratio – Risk Management-  A General Insurance business is like selling out of the money options, you make money most of the time, but there will be few large losses. To cover these loses companies need to maintain Minimum Solvency Ratio 150% as  per IRDA norms for General Insurance companies, the higher the Ratio, the better is the risk managed . The Solvency Ratio of ICICI Lombard was at 210%, whereas it was 171% for HDFC, 179% for Tata AIG & 160% with IFFCO-TOKIO. ICICI Lombard has a very comfortable Solvency ratio with 30.6% of its total investment assets in government securities, 43.5% in corporate bonds, 15.7% in equities, and the remaining in other investments.

Factor #6 – Valuation – 

ICICI Lombard IPO is coming at a valuation of 30,000 Crores, i.e. at 7x Price to Book, and 47x Price to Earnings, which may look expensive at first look but this is a consumer type business which will grow at 15-20% for the foreseeable future, generate ROE’s in the range of 15-20%, is the market leader and hence we believe the valuations are justified, though there isn’t much room for listing gains. We at Stallion Asset believe that the PE ratio will keep oscillating in the range of 40-50 for next many years.


Factor #7 Conclusion- We at Stallion Asset are positive on ICICI lombard, and believe that returns be will in the range of 12-18% for next 5-10 years in this stock. This is a great issue for genuine long term investors who are looking for a leader in a sector which has a business model which has been proven globally for decades with longevity of growth.


About the IPO –

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