Insurance The New Leadership

During the May 2019 to August 2019 all of a sudden I saw new entrants in my watchlist SBI Life Insurance, HDFC Life Insurance, HDFC AMC, ICICI Prudential Life Insurance company and there were a couple of others too which belonged to Non Insurance sector. So out of a total of 6 new entrants 4 were Insurance companies. All 4 were hitting new highs almost every other day. Out of them 3 were the last to be listed when the last phase of the Indian Bull markets had ended. All the three were suddenly showing momentum and within a few days absorbed all the supply and pushed beyond their listing prices and were still showing serious momentum and Demand. I was sure that someone big was betting Big into these companies and something extraordinary is unfolding in these companies.         Technically these companies had given a Breakout which was sure to attract many TA’s. Also technically it had negated all the supplies of previous investors in the supplies and powering ahead. Almost everyone now who are holding the stock now are into profit and hence there isn’t any reason why they should exit. As already stated in my previous article “The 52 Week Formula” that we need to buy stocks which are constantly hitting 52 week highs. The quote from Jesse Livermore from the book The Reminiscences of a Stock Operator Fits perfectly in this scenario.          “Let us say that a new stock has been listed in the last two or three years and its high was 20, or any other figure, and that such a price was made two or three years ago. If something Favorable happens in connection with the company, and the stock starts upward, usually it is a safe play to buy the minute it touches a brand new high” The Bull and the Bear Phases :          Before we go onto our next coverage point if we take time and try to understand the Bull Market phase which will make the point further more clear. The Current Indian bull markets started somewhere around 2014 ( Please note that all these are rough timelines ), and lasted till somewhere around the end of 2017 and the beginning of 2018. The markets were showing exhaustive movements with 100’s of stocks hitting new highs almost every day. Nobody was selling anything and hence the movements to top were becoming more and more profound. This was Euphoric, Slowly the markets lost steam and then we entered into a slightly bearish consolidation phase, which is continuing even now. As rightly said by John Templeton “Bull Markets are born in pessimism, grow on skepticism, mature on Optimism and Die in Euphoria”        What Next ? Since India is a growth story and this story is going to last for a few decades into the future hence we can be very sure that a new Bull market is going to arise in the future, with all the pessimism around. However when this point is coming I am not extrapolating and telling the exact timeline but that point is sure to come. We might have even started to see the offshoots of the next Bull markets already We must remember “Every new Bull Markets oversees the emergence of new leadership, while the older one fades away.”          We might have even started to see the emergence of such sectors already. One thing we must remember that if we would start to think that the leaders of previous bull market will lead again then you might be under a rude shock. My answer would be a straight away ‘No’. There’s a saying in the market, “Never Pick a Fallen Angel”          So when the next Bull market emerges we must look for new leadership who could lead and who DO NOT Have an overhead supply to negate the demand. It’s in fact quite easy to spot them. “The stocks who will be able to beat down the supply and make new highs will be the ones who might end up being the new leaders”. Remember this “The Angels of one Bull Market will be the Untouchables of the next one” How the Insurance Sector ?        Technically these companies fit into the description of being New entrants and Virtually no trapped Investors in the stock and almost No one losing money in the stock. Now not only this. There has been a huge fundamental change in the industry as well. With the new Motor-vehicles act coming into force from 1st August 2019. Which states as below “Driving an Uninsured vehicle can attract a penalty of 2000 Rs. For the second time the fine can be 4000 Rs.” Now how does this change things fundamentally ?        Prior to this hardly 50% of the vehicles plying on road were insured. With this one change in the policy by the Government suddenly the market size has almost doubled. With this the revenues are bound to increase as people become more compliant and as the laws are enforced more strictly. Since this is not a one time change this surely means an increase in revenues in future for all the companies. Which would mean more profitability and bigger revenues. Conclusion :       Whatever we see Technically has a fundamental side attached to it. Every technical movement or breakout achieved has a fundamental side attached to it to justify the movement. They coexist in harmony with each other. And as far as the insurance sector is concerned, current phase surely throws pictures of what could be the probable future of these companies. Let’s see whether a new leadership emerges from them or not in future, whether this can turn into “The Investment Idea for the next couple of years”. Only Time will tell.  

______________ Kumar Abhijeet