Nikunj Dalmia: At the outset, let me congratulate you for becoming the official Chairman. How does it feel to become the captain of the ship?
DK Mehrotra: Thank you very much. I would say responsibility has come. Designation matters, but we were working for the organisation even before getting this designation and we are committed to working for the organisation. I am happy about getting this designation as well.
Nikunj Dalmia: Do you think all leadership issues at LIC have been sorted out now?
DK Mehrotra: There was no leadership issue as such. Yes, there was a patch where things were moving a little slow. Otherwise we have high culture and ethos and the next man immediately falls into the vacant slot and takes things forward. I would not say LIC had leadership issues at any point of time. There was a vacuum at the top but we have a Chairman now.
Nikunj Dalmia: It still took one year for you to move from the interim Chairman to the Chairman so obviously there was some vacuum.
DK Mehrotra: I accept there was a vacuum. I cannot comment on why it happened, but I can tell you that LIC moved forward during that period too. The entire team was committed and performed well. Here, we never have a one-man show. It is the team which works and I am very happy that it performed.
Nikunj Dalmia: Let us look at the Indian insurance sector. All of us know the Indian financial sector is not penetrated but if I look at the numbers for the insurance industry, why is it not growing but contracting in such an environment?
DK Mehrotra: If you look at the contribution of the insurance industry to the GDP, it has grown from say 1.9% to almost 4%. LIC has contributed to that. The industry was doing very well except for the last two or three years. Various factors contributed to the slowdown. One, the general economy slowdown. Two, the industry was moving very fast on the platform of ULIP products, and that took a little beating when the market started slowing down. Then, we had some regulatory issues - norms introduced by the regulator.
At present, I would say growth is not at the desired level but the industry is going to expand and move forward.
Nikunj Dalmia: What exactly are Indian customers buying?
DK Mehrotra: We were selling insurance before the industry opened up. We did not talk (about) ULIP products. But when insurance opened up, there was a lot of talk about selling ULIP products and it was actually accepted by the market. So we were a part of that whole system too. We were selling ULIP products. We did very well at one point of time. The composition was almost skewed in favour of the ULIP which was at almost 85%.
Nikunj Dalmia: Now it is the other way around I understand.
DK Mehrotra: Yes.
Nikunj Dalmia: ULIP is only 15%.
DK Mehrotra: Yes, because we took a paradigm shift, a conscious shift, two or three years back. As an insurer with a long-term perspective, we wanted to sell insurance as the core business - risk cover is our business. Investment return may be a throw-in, but we thought we have to emphasise on insurance and risk operations which is our core business. I will say we succeeded. Today, if I am able to sell 85% conventional products, it shows we succeeded and we created an awareness among the general public that insurance is a different product from investment, and they accepted our call on that.
Nikunj Dalmia: Is the traditional product more like a low-margin product for LIC and ULIP is where the cream was?
DK Mehrotra: I would not say (that) because were not looking at any product in the terms of the profit it generated. I would look at where it is from the perspective of what benefits it gives to my policy holder. Non-ULIP products definitely give better returns in the long term. Plus it gives the risk, even to the intermediaries. It has a constant flow of income and generates large income for us as well. ULIP is good, I would not say (that) it is not a good product. We will present the ULIP product if there is space in the market. But we have to have a proper combination of the two products, and I think what we are selling today is the right product for insurance.
Nikunj Dalmia: LIC is India's biggest institutional investor. So let me hear it from the horse's mouth, what is your view on markets?
DK Mehrotra: The market today is rangebound. Various factors are responsible for that. The rupee has fallen, there is inflation. It is more sentiment keeping the market rangebound. The monsoons have failed.
This is a bad patch we are going through. In the short term, we may not find much upside in the market, but on a long-term basis, we do feel the market should improve and reach the level you saw about two or three years ago in the least. But we are going through a slowdown now and that will impact sale of insurance products as well.
Nikunj Dalmia: At a time when the investment cycle has broken down, the Indian consumer is exhausted and confused and earnings have been fuzzy, what gives you the confidence that in next two or three years Indian markets will improve?
DK Mehrotra: If you look into the fundamentals today, they are still strong. The India growth story is still intact. That is why I say we are going through a bad phase. Since we are an economy which depends more on domestic consumption, we have to come by, we have to bounce back, we have no other way out. The market today has bottomed out although I say it is rangebound. It is not going to go anywhere beyond that. I am hopeful as an investor and that things will improve in the long term.
Nikunj Dalmia: You have invested about Rs 45,000 crore in Indian equity markets for the year FY12, which is a big number. Are you confident of investing the same number this year as well?
DK Mehrotra: We have a very simple thumb rule - we put 10% to 15% of our investment funds into the capital market. Last year, we put about Rs 45,000 crore and going by our own projection for the year, we should be able to match that figure this year as well.
Nikunj Dalima: Even if ULIP is not growing?
DK Mehrotra: ULIP was not that good last year but our persistency was good. We got good renewal income. So, if that happens and we get a good opportunity, we will able to move that amount of money into the capital markets.
Nikunj Dalmia: Are you likely to take that 45 to 55 because you are of the view that Indian markets are looking attractive?
DK Mehrotra: In the short term, they are not going to be that attractive. In the long term, if the market improves, 45 may go to 50 but we will try to at least keep pace with what we did last year.
Nikunj Dalmia: But 45 will not become 40?
DK Mehrotra: Should not.
Nikunj Dalmia: Any regrets that nearly half of the Rs 45,000 crore you invested in FY12 went into theONGC FPO?
DK Mehrotra: No.
Nikunj Dalmia: LIC got a lot of bad PR for that ONGC investment.
DK Mehrotra: All depends on who is talking about it. If you ask me, we think it is a very good investment. It is an opportunity we came across and we took advantage of it. Again, it all depends on how people view that because it was a first-time experience of buying through an auction. The process may have to be further refined, but we did not do anything wrong. We picked a very good scrip and it will give us a lot of value in the long term.
Nikunj Dalmia: Why do you say that?
DK Mehrotra: I feel so because ultimately it relates to oil, and oil has to pick up in the long term. It cannot remain at this stage. With a little more support from various corners and the ministry, things will be better.
DK Mehrotra: Thank you very much. I would say responsibility has come. Designation matters, but we were working for the organisation even before getting this designation and we are committed to working for the organisation. I am happy about getting this designation as well.
Nikunj Dalmia: Do you think all leadership issues at LIC have been sorted out now?
DK Mehrotra: There was no leadership issue as such. Yes, there was a patch where things were moving a little slow. Otherwise we have high culture and ethos and the next man immediately falls into the vacant slot and takes things forward. I would not say LIC had leadership issues at any point of time. There was a vacuum at the top but we have a Chairman now.
Nikunj Dalmia: It still took one year for you to move from the interim Chairman to the Chairman so obviously there was some vacuum.
DK Mehrotra: I accept there was a vacuum. I cannot comment on why it happened, but I can tell you that LIC moved forward during that period too. The entire team was committed and performed well. Here, we never have a one-man show. It is the team which works and I am very happy that it performed.
Nikunj Dalmia: Let us look at the Indian insurance sector. All of us know the Indian financial sector is not penetrated but if I look at the numbers for the insurance industry, why is it not growing but contracting in such an environment?
DK Mehrotra: If you look at the contribution of the insurance industry to the GDP, it has grown from say 1.9% to almost 4%. LIC has contributed to that. The industry was doing very well except for the last two or three years. Various factors contributed to the slowdown. One, the general economy slowdown. Two, the industry was moving very fast on the platform of ULIP products, and that took a little beating when the market started slowing down. Then, we had some regulatory issues - norms introduced by the regulator.
At present, I would say growth is not at the desired level but the industry is going to expand and move forward.
Nikunj Dalmia: What exactly are Indian customers buying?
DK Mehrotra: We were selling insurance before the industry opened up. We did not talk (about) ULIP products. But when insurance opened up, there was a lot of talk about selling ULIP products and it was actually accepted by the market. So we were a part of that whole system too. We were selling ULIP products. We did very well at one point of time. The composition was almost skewed in favour of the ULIP which was at almost 85%.
Nikunj Dalmia: Now it is the other way around I understand.
DK Mehrotra: Yes.
Nikunj Dalmia: ULIP is only 15%.
DK Mehrotra: Yes, because we took a paradigm shift, a conscious shift, two or three years back. As an insurer with a long-term perspective, we wanted to sell insurance as the core business - risk cover is our business. Investment return may be a throw-in, but we thought we have to emphasise on insurance and risk operations which is our core business. I will say we succeeded. Today, if I am able to sell 85% conventional products, it shows we succeeded and we created an awareness among the general public that insurance is a different product from investment, and they accepted our call on that.
Nikunj Dalmia: Is the traditional product more like a low-margin product for LIC and ULIP is where the cream was?
DK Mehrotra: I would not say (that) because were not looking at any product in the terms of the profit it generated. I would look at where it is from the perspective of what benefits it gives to my policy holder. Non-ULIP products definitely give better returns in the long term. Plus it gives the risk, even to the intermediaries. It has a constant flow of income and generates large income for us as well. ULIP is good, I would not say (that) it is not a good product. We will present the ULIP product if there is space in the market. But we have to have a proper combination of the two products, and I think what we are selling today is the right product for insurance.
Nikunj Dalmia: LIC is India's biggest institutional investor. So let me hear it from the horse's mouth, what is your view on markets?
DK Mehrotra: The market today is rangebound. Various factors are responsible for that. The rupee has fallen, there is inflation. It is more sentiment keeping the market rangebound. The monsoons have failed.
This is a bad patch we are going through. In the short term, we may not find much upside in the market, but on a long-term basis, we do feel the market should improve and reach the level you saw about two or three years ago in the least. But we are going through a slowdown now and that will impact sale of insurance products as well.
Nikunj Dalmia: At a time when the investment cycle has broken down, the Indian consumer is exhausted and confused and earnings have been fuzzy, what gives you the confidence that in next two or three years Indian markets will improve?
DK Mehrotra: If you look into the fundamentals today, they are still strong. The India growth story is still intact. That is why I say we are going through a bad phase. Since we are an economy which depends more on domestic consumption, we have to come by, we have to bounce back, we have no other way out. The market today has bottomed out although I say it is rangebound. It is not going to go anywhere beyond that. I am hopeful as an investor and that things will improve in the long term.
Nikunj Dalmia: You have invested about Rs 45,000 crore in Indian equity markets for the year FY12, which is a big number. Are you confident of investing the same number this year as well?
DK Mehrotra: We have a very simple thumb rule - we put 10% to 15% of our investment funds into the capital market. Last year, we put about Rs 45,000 crore and going by our own projection for the year, we should be able to match that figure this year as well.
Nikunj Dalima: Even if ULIP is not growing?
DK Mehrotra: ULIP was not that good last year but our persistency was good. We got good renewal income. So, if that happens and we get a good opportunity, we will able to move that amount of money into the capital markets.
Nikunj Dalmia: Are you likely to take that 45 to 55 because you are of the view that Indian markets are looking attractive?
DK Mehrotra: In the short term, they are not going to be that attractive. In the long term, if the market improves, 45 may go to 50 but we will try to at least keep pace with what we did last year.
Nikunj Dalmia: But 45 will not become 40?
DK Mehrotra: Should not.
Nikunj Dalmia: Any regrets that nearly half of the Rs 45,000 crore you invested in FY12 went into theONGC FPO?
DK Mehrotra: No.
Nikunj Dalmia: LIC got a lot of bad PR for that ONGC investment.
DK Mehrotra: All depends on who is talking about it. If you ask me, we think it is a very good investment. It is an opportunity we came across and we took advantage of it. Again, it all depends on how people view that because it was a first-time experience of buying through an auction. The process may have to be further refined, but we did not do anything wrong. We picked a very good scrip and it will give us a lot of value in the long term.
Nikunj Dalmia: Why do you say that?
DK Mehrotra: I feel so because ultimately it relates to oil, and oil has to pick up in the long term. It cannot remain at this stage. With a little more support from various corners and the ministry, things will be better.
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