In conversation with Niraj Kumar, Chief Investment Officer, Future Generali India Life Insurance Company Ltd

We mustn’t succumb to ‘Fear ‘ and ‘Greed’ and leverage the market falls as an opportunity to build a long-term constructive investment portfolio, expresses Niraj Kumar, Chief Investment Officer, Future Generali India Life Insurance Company Ltd.

Could you share your perspective on the life insurance industry in India and discuss the significant growth areas and developments that have emerged after the pandemic? 

Life Insurance as a sector in the economy has indeed gained paramount importance in the aftermath of Covid and has reinforced the increasing need for deeper penetration of insurance in terms of providing the requisite protection and building a safety net. 

India’s Life Insurance industry has been one of the prominent growth sectors and has exhibited strong growth over the last few years. This healthy growth rate has come despite being posed with a myriad of challenges viz.COVID-19- and the resultant lockdown impacting the industry’s ability to write new business and trimming of taxation benefits for high-ticket ULIP policies. In fact, the Industry has seen stupendous growth of 19 per cent in FY23 with maximum growth being witnessed in the month of March, driven by strong demand for traditional products ahead of tax regime change (w.e.f. April 1, 2023), making high ticket traditional savings plans, more than Rs 5 lakh fully taxable at the marginal tax rate. Going forward in FY24, while growth in the sector may see some normalization due to high base and new tax implementation on high ticket policies, we reckon life insurance as a sector remains well placed to grow healthily from a medium to long-term standpoint. 

We reckon that the Indian life insurance sector is at an inflection point and poised for a multi-decade growth rebound era. The next leg of growth is likely to be aided by resilient economic growth, financialization of the economy and favourable demographic changes amid a high and rising mortality protection gap and Longevity (Retirement) savings gap. These structural growth drivers coupled with a lower share of Life Insurance in household assets, would ensure that the life insurance sector will continue to deliver healthy double-digit growth in the near to medium term. 

How do you view the equity markets in the short to medium run? 

We are cautiously constructive on the Indian equity markets in the short to medium term. Our optimism stems from a multitude of positives like resilient services and manufacturing PMI, CPI inflation cooling off and a pick up in FPI flows into equities. Strong earnings growth led by domestic facing sectors like BFSI, Cement, Infrastructure, FMCG and Autos also has us enthused. Our caution, however, stems from historically high-interest rates in developed markets which may cast a shadow over developed markets, especially US, and the uncertainty over normal monsoons in India that can have a cascading impact on the slowing rural economy. Unseasonal rains so far, especially in the North, have not helped either. 

Broadly, we believe India is headed for a reasonably good earnings cycle in the medium term. Pick-up in infrastructure spending ahead of next year’s General election and margin expansion across the manufacturing sector on the back of ease in input cost inflation is likely to be near-term triggers amid bouts of volatility that may arise due to global growth concerns. 

What are your top three picks for sectors to invest in for the long haul, and which sectors appear attractive based on their current valuations? 

We believe the next leg of earnings growth will be driven by sustained domestic investment and an expected pick-up in consumption. Supportive policy reforms by the government such as Atmanirbhar Bharat and Production Linked Incentive (PLI) scheme, along with a strong infrastructure push will ensure a new leg of the investment cycle. We prefer BFSI, consumption and capital goods which are likely to be the prime beneficiaries of the same. Companies in the BFSI space have reported robust earnings with best ever asset quality. Credit growth, though down from the peak, is still stout. 

While we may see some moderation in the earnings growth of banks, NBFCs should start delivering better performance given margins have bottomed out and would now start stabilizing. Capital goods space continues to benefit from strength in order books stemming from sustained capex upcycle. FMCG companies too have delivered healthy performance largely led by pricing growth, with volume too expected to recover with a gradual pickup in rural demand. IT is expected to be a laggard in the near term but would eventually start looking attractive once growth concerns are allayed. 

Can you elaborate on your experience as the CIO at your company and identify the primary challenges you have encountered during your tenure? 

The last few years in markets have tested the mettle of every CIO in the investment arena, as they have been posed with the most unprecedented events in history such as Covid 19, geopolitical unrest (Russia-Ukraine standoff), persistent high Inflation with crude and other commodity prices going to all-time highs coupled with the energy crisis in Europe. 

Consequently, we saw global central banks embarking on aggressive monetary tightening & rate hikes leading to chaos in rates and currency markets, along with unprecedented FII selling. These multitudes of factors have kept the markets extremely volatile and have indeed necessitated investment managers like us to be very nimble and deft in managing our portfolios amidst these adversities while ensuring that the portfolio is aligned with its risk-return objectives. Markets in the last few years have fallen off the cliff and have also bounced back swiftly and it was during these testing times that as an investment manager, we need to keep our calm and composure. 

We mustn’t succumb to ‘Fear ‘ and ‘Greed’ and leverage the market falls as an opportunity to build a long-term constructive investment portfolio. No doubt traversing through this phase was a huge ordeal, but it’s the ability to maintain temperament during such turmoil that has enabled us to navigate through the tough phase successfully. In these testing times, we have managed to render best-in-class risk-adjusted returns for our stakeholders, while being aligned to our fund objectives.