WHAT IS EMBEDDED VALUE IN LIFE INSURANCE BUSINESS?

Embedded value refers to the present value of the expected net future cash flow (adjusted for probability) of a life insurer from the policies that are currently in force. Embedded value is a critical metric for life insurers and is popularly used to value insurance firms across the world.

LIC's Embedded Value as on 30th Sept, 2021

Hence in case of Life insurance business Price to Embedded value ratio is preferred more than the Price to Earnings ratio.

It is calculated as:

(Price/Embedded value).

Note: The upcoming LIC IPO is also going to be valued on its Embedded value.

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THESIS ON CENTRAL DEPOSITORY SERVICES (INDIA) LIMITED (CDSL)

Central Depository Services (India) Limited (CDSL) is very good stock to hold for long-term investors and I am presenting a thesis on it which is as follows: · Its fundamentals are very strong and impressive which can be understood from the following points: Ø It is a debt free company. Ø It has delivered a good profit growth of 24.10% CAGR over last 5 years. Ø It has been maintaining a healthy dividend payout ratio of 42.69%. Ø It has a healthy Cash from Operations. Ø It has a healthy ROE and ROCE of more than 20%. Ø It has a very healthy Operating and PAT Margins of 75.51% and 58.55% respectively as per the financials of F.Y. 2020-21. · The penetration to equity markets in India is still very low as roughly about 3% of India’s population invests in equity markets as compared to 55% in US, which suggests that there’s lots of headroom for India’s stock marketplace p...

UNDERSTANDING ESG FRAMEWORK

Most investors focus on the profit generating ability of a business to make investment decision. However, over the last few years, the societal discussions about companies and businesses have also started focusing on sustainable development, and corporate social responsibility. This has given traction to investment theme that is focused on Environment, Social and Corporate governance (ESG). Initially this framework was used by handful of “Impact” investors. But this framework has gradually gained traction as these frameworks also provide commercial value. Under this framework investors evaluate companies based on these criteria: (i) How does the company’s activities affect the environment? Companies with low carbon emission and low contributors to pollution rank better than others. (ii) What are the activities that the company perform in terms of social development? This includes focus on human rights, gender equality and many such social factors. Companies that contri...

WHAT ARE DEFENSIVE INDUSTRIES?

These are industries that create products and services that have low income elasticity i.e., a fall or rise in income does not affect the demand significantly. Therefore, these industries experience minimal impact on account of economic cycles. Rather, their business prospects are affected only by secular trends. Food, agricultural inputs, healthcare and pharmaceutical are some of the industries that come under this category. The defensiveness of this industry is the reason why analysts generally suggest to shift to the defensives during a equity market correction.

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