See the market capitalisation of Hdfc Ltd, Hdfc bank, Icici bank, Icici Prudential life, SBI, Kotak bank, and Axis bank. Just taken these as examples to say what I wish to say further.

Hdfc Ltd is a simple home mortgage company with good margins. Make no mistake the fund borrowing pricing and the lending pricing ensures good margins. Now hold your breath. How many mortgage companies are there in India? well close to 100, if not more than 100. Remember all banks give home loans too, and many of them have bought the ‘securitized’ portfolio from Hdfc too. Now Hdfc promotes a bank and it has a market cap more than the ‘old’ parent. Parent of course benefits from the increase in market cap.

Now parent has more children – mutual fund, life insurance, general insurance, loans to students, etc. – ALL THESE ARE POTENTIAL stand alone listed companies which will add a lot to the market capitalization of the parent.

Icici bank has as many companies – life insurance, home finance, mutual fund, brokerage, general insurance – so theoretically it should be at a higher price -on a SOP – sum of parts valuation. If that is not so one has to wonder why. Of course the life insurance arm is already listed and the mutual fund could be the next in line to list. Then the general insurance, and brokerage arms could get listed too!

Ditto for Kotak and SBI banks too.

Why do the subsidiaries have so much vouralue? Welcome to the world of story telling.

India is a highly uninsured and underinsured market. Even if 20% of Indian population were to buy life insurance products…

India is a young market so even if 8% of our population were to do SIP in Icici Prudential asset management company…

We need so much of pension arrangements. Outside of our privileged baboo(n)s nobody has a pension, so there is a huge market for pension

India is a country of great distances..China has 300,000 aircrafts India has 39000…imagine the potential (figures are imaginary of course) so imagine he scope for listing Vitara, Air India, Air Asia….

Our health penetration is not so great..so greater things are going to happen for Apollo Hospital

Banking…Entertainment…Mahindra holiday Resorts….

You get the drift? You will hear all such stories in a bull market. They will urge you to buy more and more in a rising market. I am no saying that the market is saturated, but KNOW YOUR RISK taking and RISK UNDERSTANDING skills. When you invest in a market with a high pe it takes more time to earn money. So if you are starting a SIP today in a dynamic or balanced fund REMEMBER THAT your mind frame should be 7 years…and not 5 ..which was the right number at a lower pe say in 2015.

And asset allocation (if you have the discipline) is about removing money from a rising asset class and investing in a dull or falling asset class. Means selling equity and buying Real Estate. What I am hearing is the reverse. Today people want to sell their RE, gold and even the clothes they are having to invest in a ‘sip’. How expensive this SIP boom i have no clue.

 

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  1. “And asset allocation (if you have the discipline) is about removing money from a rising asset class and investing in a dull or falling asset class. Means selling equity and buying Real Estate. ” – this is the crux. I remember a few years ago ( 2013 and before ) you advised in the reverse when the stock markets were going no where and every body was scampering after real estate. Investing in the stock markets then proved lucrative ( to me atleast ).

  2. Almost every house has an LIC policy.. saying underpenetrated is funny.. 🙂 May be true about other kinds of insurance possible..

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