Better prospects

In this edition of Better Markets Digest #16, we look at:?

- S&P upgrades India’s rating

- LIC eyes health insurance

- More scams than ever

Be (be be minus) positive

How good an investment is India? I’m sure you have an answer, but wait! First: imagine you were born in Switzerland to a Danish immigrant watch-maker couple, without any connection to India. And that you’re managing the treasury of a multinational bank. And that if you get the answer wrong, you might lose 10 million Euros, and maybe even get thrown in jail. What’s your answer now??

Not so easy, huh?

Thankfully for you, there are entities — Moody’s, S&P, Fitch — that give countries “sovereign credit ratings”. Technically, these tell you the chances that a country will pay back its loans. But they become a benchmark for all investments in the country. Besides, if you’re managing other people’s money, you’re unlikely to go against what these ‘credit rating agencies’ say, because everyone from clients to regulators will come for your head if you go wrong.?

That brings us to the news. S&P has just changed its outlook for India. To be sure, its rating is the same it has been for almost twenty years: BBB- — the lowest “investment” grade. If this were an exam, India would have just scraped by to the first division. Anything below this, and your investment is basically a gamble.?

But while that’s what S&P thinks of today’s India, it also gives you its ‘outlook’ — its opinion on where India may go in the future. And here, things have gotten better. S&P’s outlook on India has changed from “stable” to “positive”. This is S&P’s way of saying it might upgrade India’s rating within the next two years, if all goes well.??

Of course, you can’t boil an entire country down to a single grade. No matter how careful you are, it’s impossible to find a rating that everyone would agree with. That’s brought credit rating agencies a lot of criticism over the years. One such critic is PM EAC member Sanjeev Sanyal, who believes S&P under-rates India by a couple of notches.?

Health insurers fear for their health

The Life Insurance Corporation of India, when it was formed, was India’s entire life insurance industry. It was created when a still-young Indian government nationalised and stitched together 245 different life insurance businesses, the oldest of which dated back to 1818. The company was synonymous with the industry all the way until 2000 — when India’s insurance industry was finally liberalised.?

One glimpse at India’s life insurance market today, and this historical legacy is clear. Technically, there are 26 registered life insurance companies in India. But really, LIC towers over its 25 ‘competitors’:?

While its rivals are growing fast, LIC still commands more than half of India’s life insurance market. In the month of March alone, for instance, it pulled in ? 36,300 crore in premiums. Meanwhile, the rest of the industry together took in ? 23,913 crore. LIC is so huge, in fact, that when it listed on the bourses, SEBI waived its public shareholding requirements because the market isn’t deep enough to absorb 25% of such a big company.

India’s life insurance market, by the way, is thrice as big as all other types of insurance put together. Which is why, when LIC announced its foray into health insurance, the incumbents would have broken a sweat. The life insurance behemoth plans to acquire a health insurance company and enter the space. If it follows through, competition in the sector may heat up severely, pulling down premiums and forcing private providers to settle more claims. It might even catalyse a wave of consolidation across the sector.

Sabka number aayega

Here's a scary table from RBI's annual report. The number of financial scams in India has more than doubled in the last financial year, although the amount lost has reduced. That means more people are losing smaller amounts of money to fraud. Small scams have skyrocketed after the pandemic. In 2019–2020, there were 8,703 cases of scams, involving ? 1,85,468 crores. This year, there were 36,075 scams where people lost ? 13,930 crores.?

These relate largely to cards and internet-based transactions. While the numbers are scary, reality may be far scarier, because not all frauds are reported. The RBI's list doesn't include crypto, for instance, which is a major vector for frauds. There are also fake loan apps, pig butchering scams, romance scams, stock market scams, etc. that lie outside the RBI's list. Add all these together, and the number of cases and their total financial damage will be significantly higher.?

Scams and frauds have been truly democratised and it’s never been easier to be a victim of fraud. To quote Ashneer Grover:?

Two interesting charts

How much do elections affect the stock market? Well, not at all, if you zoom out enough:

The RBI looks at how India’s high-frequency indicators have moved over the last couple of years. Do remember, though, that a lot of FY 2023’s ‘expansion’ was simply a matter of getting out of the pandemic.