Investment Idea Max India Ltd

Bullish on the insurance sector, Max India in particular

Rationale:
India Population: Over 1 billion
Economy: Fourth largest in the world in terms of purchasing power parity (PPP)
GDP growth Rate: Over 6% per year on an average for the last decade
Savings Rate: Around 26% of GDP estimated middle class
Insured population: Only 20% of the insurable population is covered.

The rationale for being bullish on insurance companies is that the huge untapped market in India which is evident from the above statistics.

Listed stocks in the Indian market that have an insurance play:
ICICI Bank, Reliance Capital, HDFC Bank, Bajaj Finserv, Aditya Birla Nuvo, and Max India.

Of these, Max India is much more of an insurance play than any other company as the other listed companies have more of non-insurance business in their structure than insurance. In case of Bajaj Finserv, it has an agreement with Allianz of selling shares at a pre-settled price thus capping the upside of the stock.

Max India Ltd is the holding company of Max New York Life, Max healthcare, Max Neeman Medical International, Max speciality films, and Max Bupa Health Insurance. Since insurance is a capital intensive business, most of the private players are in red as of now but are expected to make profits from next year and that is when the IPOs of the insurance companies are expected to hit the market (FY 2011-2012).

Why Max India Ltd.
1. I believe that the bancassurance tie-up with Axis Bank is a positive development for Max India from a strategic point of view and will boost the annual premium earning (APE) growth and market share of MNYL going ahead (till date Max was solely dependent on agents for their business).
2. Max India promoter Analjit Singh plans to consolidate his holding in the insurance and healthcare firm by buying up to 5% this year through the creeping acquisition route. Promoters have already acquired 1.7% stake from the open market through a family-owned firm Maxopp Investments and plans to buy another 3.3%. Indian market laws restrict promoters from increasing their stake through creeping acquisition to 5% a year without having to make an open offer to the public. This shows the amount of confidence the promoter has on his business and the promoters know the health of their business more than anybody else.
3. Although the index is nearing its life time high, Max is near its 52 weeks low as there is no immediate positive for the stock, it is not in the radar of the operators and HNIs.
4. Max healthcare is on an expansion route and is in the process of starting greenfield hospitals in Mohali and Bathinda (Bathinda is an untapped market as far as 5 star hospitals are concerned although the purchasing power is on the higher side). Max healthcare is also going to benefit from the medical tourism that India is attracting as its facilities are world class. Finally, listing of this subsidiary will further unlock value).
5. Proven and respected management team lead by Mr. Analjit Singh.

The insurance sector is suffering from some minor hiccups at the current time due to the ULIP controversy and the new guidelines from IRDA for ULIP products and pension products, but going forward although the new fee structure will bring down the profit margins but the volume growth will more than compensate this.

Ambuja cements recently sold its entire 11.5% share of ING Life Vysya at around 190 crore (ING Life Vysya is a relatively small player when compared with MNYL). If this valuation along with the share price of Fortis/Apollo Hospitals (although Max healthcare is very small compared to Fortis and Apollo) are any indication then Max Ltd has more than 100% upside (timeframe 2-3 years) from the current closing price of Rs. 152.25 on August 20, 2010.

This bit of information might give you a little bit more insight on the potential that the insurance companies have.

Warren Buffett is the third richest man in the world is known by one and all; however, many of us attribute his wealth due to the stock picks he has made over the years which have turned multi bagger for him.

Although there is no doubt that Warren Buffett is one of the most gifted person in this world as far as stock picking ability is concerned, it is interesting to note that the $47 billion fortune is not only due to the fact that the stocks and bonds he bought over the years have risen in value but the majority of Warren Buffett's $47 plus billion dollar fortune is derived from his holding in Berkshire Hathaway (a company that he owns). Warren Buffett has transformed Berkshire Hathaway into a thriving conglomerate (from a textile company which he had bought) with a substantial interest in the insurance industry. The share price of Berkshire Hathaway have risen dramatically over time, largely as a result of Warren Buffett's ability to successfully invest the vast sums of money generated by the insurance companies that Berkshire Hathaway owns and also because of the trust and the name Warren Buffett enjoys among the investing community.

Disclaimer: I have a small investment in Max India (both in the stock and an insurance policy)

The Ultimate Liquid Investment

Another alternative investment which has gained popularity over the years, especially after the financial crisis and the ongoing sovereign debt crisis is fine wine investment.

There are 2 major rationales behind investing in fine wine are:
Firstly as an investment for future consumption, buying young wines at the initial release price, with the assumption that this when mature, would be much more expensive to buy and tastier to drink.
Secondly as a financial investment, buying wines with the sole intention of reselling later for a profit.

For investors who keep a cellar, both factors will influence investment. The overall demand for fine wine, which is produced in very small quantities, has increased enormously over the last several years. The demand is set to go up as more and more people join the millionaire club especially from emerging markets (the BRIC countries). The Liv-ex 100 Fine Wine Index has outperformed the FTSE 100, Dow Jones and other indexes over the last few years offering significant returns without the volatility of the stock market.

The essentials to wine investment are to focus on the top wines from the best vintages because only a small percentage of wines produced will increase in value over time. The second most important aspect is storage of wines under proper temperature control.

To be regarded as a good investment, a wine requires the following qualities:
A. It must be an instantly recognized brand with a long track record of quality and consistent high prices.
B. The wine must come from a great vintage.
C. The label must have strong consistent global demand.
D. The wine must have the ability to age and improve over a long period of time.

Bordeaux represents about 91% of the wine investment market and therefore should take the corresponding share (more than 90%) in any wine portfolio.

The disadvantage of wine investing is similar to that of gold investment and art investment i.e., there are no interest payment, dividend payments or rental incomes. Moreover, there are the costs of storage and selling which have to be factored in and these brings down the profitability.

Typically, a broker will work on a 10% margin while selling wine. Selling at auctions will also have consignor fees to be considered. These generally begin at a maximum of 10% depending on the quantity and quality of wine on offer.

Unlike in art, the amount of investment can be as little as £500 (approx INR 34,000) in a case of wine, although a minimum investment of £10,000 (approx INR 674,000) is considered optimal to create a more balanced portfolio so that the risk is spread at least across a few Chateaux and vintages.

There are quite a few wine investment companies and wine investment funds who accept a minimum of £10,000 (approx INR 674,000) for investment through them. One has to be careful about the charges when dealing with any such company as some of them charge as high as 25-30% upfront. Before choosing a investment company, the track record and charges are to be considered.

Wine should only be a small part of an investors total investment portfolio as a diversification ploy and is to be considered riskier than bonds, gold, equities.

Is The Future Upon Us

Until a few years ago, there were not many people who might have ever heard the December 21, 2012, prophecy based on the end of the Mayan Long calendar.

Who were the Mayans? Mayans are Meso-American civilization dating back to 2000 BC and they were known not only for the fully developed written language but also for their accurate astronomical and mathematical calculations.

The Mayan Long Count calendar lasts for 5125 years and ends on December 21, 2012. Although this may mean many things (including they just had to end the calendar at some date, so they ended on December 21, 2012), the most popular is the belief that the world will come to an end on December 21, 2012.

Although there is no explanation given how the end will come but since the long count calendar was made corresponding to some astronomical calculation it has lead to the belief that the end will be caused by some extraterrestrial phenomenon.

Some scholars and proponents of the December 21, 2012, theory believe the end will come via a large solar flare. This flare will come because the orbits of the planets in our solar system will be infiltrated by an outside orbiting planet that the Sumerians and the Babylonians referred to as Nibiru.

Another school of thought, however, believe that on December 21, 2012, a very rare planetary alignment will occur during the winter solstice. At this time our planetary system (including the sun) will align at a point that is known as the galactic equator. This alignment is so rare that it only happens every 25,000 years and this rare planetary alignment could signal a shift in the magnetic poles and thus cause total annihilation.

There are talks about some scientific experiments being tried where atom will split in a long tunnel and this may lead to a creation of black hole and everything might get over within a few seconds and this experiment, they say, may be completed on December 21, 2012.

Another prediction is of some giant meteor striking the earth on December 21, 2012, although there is no evidence of any meteor or asteroid that might come the Earth’s way within the next 2 years.

What does religious scriptures say

Prophecies of Armageddon: Matthew 24:29 says, "Immediately after the tribulation of those days shall the sun be darkened, and the moon shall not give her light, and the stars shall fall from heaven, and the powers of the heavens shall be shaken." These biblical verses might also refer to some extraterrestrial event, but then bible does not mention December 21, 2012, as the Armageddon Day.

In Hinduism, the world begins in Satya Yuga and ends at Kali Yuga and the cycle repeats (there are a total of 4 yugas). The accepted belief in Hinduism is that at the end of Kali Yuga, we will see total annihilation and creation will once again begin after destruction and a new Satya Yuga will start. Lord Krishna had said Kali Yuga will last for 5000 years and some “gurus” are predicting December 21, 2012, is the end of Kali Yuga.

For some of the people who ascribe to the December 21, 2012, theory, the volcano in Iceland emitting ash and the debt crisis involving sovereign countries and the riots arising out of them are early signs of things to come.

Although December 21, 2012, prophecy is a scary one, do we need to worry? Absolutely no. There were many other prophecies which went wrong and perhaps this one will pass too without an event. And, if indeed, this is true and the Earth does come to an end why should we worry about dying in any case we are mortals. Just lift up the glass and say cheers and ENJOY.