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The shift of sales from Ulips to non-unit-linked products has impacted equity participation of insurance companies, says Sudhakar Shanbhag, CIO, Kotak Mahindra Old Mutual Life Insurance. In an interview with Jash Kriplani, he says the markets are hoping for a stable government at the Centre. Excerpts.
At current valuations, the Indian market looks cheaper than the long-term average, but is still pricier than its peers. What is your outlook?
A premium to other emerging markets has always been there due to the demographic advantages that India enjoys. There is no reason to believe that this advantage would be lower now, or in the future. If we continue to see investors moving away from emerging markets, we will also be impacted. But this impact may not be that high as we have covered a lot on the currency front since July 2013.
What is your reaction to RBI’s repo rate hike?
RBI has chosen to raise the policy rate by 25 bps even after data on headline consumer price index (CPI) came in at sub-10% in January with core inflation being close to 8%, given that the EM selloff in the past couple weeks would have an impact on the rupee as well. It also indicates that there is a level of conviction in the Urjit Patel committee recommendations, with inflation being the primary focus.
Having said that, compared to July 2013, India is in a far better position with respect to foreign exchange reserves due to the $32 billion raised through FCNR-B deposits.
How do you see the growth rate going ahead?
Recently, there have been revisions to the GDP numbers and, based on these, FY14 growth may come in at 4.8-5%. The IIP has been sluggish and services have deteriorated. Since a new government will be formed in Q2 and any concrete policy action would be dependent on that, the FY15 GDP is expected in the range of 5-5.5%.
Are insurers still feeling redemption pressures?
When we look at the impact of various regulatory changes, we can see a shift of sales from Ulips to non-unit linked products. In Ulips, the selection of the asset class is at the behest of the customer — there’s a bend towards equity as the policyholder comes with a long-term commitment. In non-unit-linked products, since there are inherent guarantees, the equity participation is lower. Due to this divergence, growth in AUMs has been at a