Your Money in 2020- Business News
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Your Money in 2020

Innovation in products will be the key factor, be it banking, mutual funds, insurance or loans

Your Money in 2020
Illustration by Raj Verma

The year 2019 saw high volatility in stock markets but also the formation of a stable government. Towards the end of the year, the Sensex crossed the key level of 41,000, even though India registered its lowest quarterly growth in GDP in six years in the second quarter. As we end the year with bad news on the economic front, experts say things may become better in 2020. According to a Goldman Sachs report, Global Economic Analyst, the annual average global growth is likely to improve from 3.1 per cent in 2019 to 3.4 per cent in 2020. US GDP is predicted to repeat the performance of 2019 and grow 2.3 per cent. China may face a marginal decline from 6.1 per cent in 2019 to 5.8 per cent. However, things are projected to be significantly better for India with GDP growth likely to improve from 5.1 per cent in 2019 to 6.4 per cent in 2020.

In the personal finance space, too, you can expect a lot of positive changes. Here is how the year is likely to pan out.

Stock Markets

Stock market performance in 2019 was limited to gains in select large-cap stocks as returns from the mid-cap segment were subdued while the majority of small-cap stocks gave negative returns. While the economy registered one of the lowest quarterly GDP growth rates (4.5 per cent) in the second quarter of FY20, the indices kept climbing. This may appear to be misleading, but markets are known to run ahead of time, and many experts consider this an indication of revival. "Due to the prolonged on-ground slowdown and low confidence, we have seen a few stocks driving the Nifty higher. As growth becomes more broad-based and uncertainty recedes, returns would also become more dispersed," says Shrey Loonker, Fund Manager, Value Strategy PMS, Motilal Oswal Asset Management.

To invest in stocks and other instruments, many investors go through discount brokerage firms. The new idea taking shape is called smallcases. "These are a new way for retail investors to take exposure to stocks and ETFs via professionally managed portfolios that reflect an idea, strategy or objective. Some key themes we have seen emerging are that investors are becoming increasingly cost-conscious and digital-native and are looking for transparency," says Vasanth Kamath, Co-Founder and CEO, Smallcase Technologies, which offers a tech platform on which investors can choose from the offered portfolios as well as brokers.

The biggest question that most equity investors have for 2020 is how much the market will rise. Experts believe that stock markets will register a healthy performance. For example, Loonker of Motilal Oswal AMC predicts 12-15 per cent Nifty returns for the year.

But before that can happen, the economy has to grow faster, and for this the government has taken some steps that have the potential to revive corporate performance as well as valuations. "The focus would be on how the slew of measures taken by the government in the past few months translates into economic prosperity; the government's further course of action; the annual Budget; earnings in H2 showing recovery signals; and the trend of foreign inflows" says Pankaj Bobade, Head of Fundamental Research, Axis Securities.

The financial sector works as a growth engine for any economy. Despite many challenges, the BFSI (banking, financial services and insurance) sector has been among the better performing ones in 2019. "Given the growth potential, profitability and lower level of delinquencies, retail lending has been a key focus for banks and NBFCs and is a key driver for valuations," says Sanjay Doshi, Partner, Deal Advisory - Financial Services, KPMG in India. "Insurance and AMCs have definitely gained traction over the lending business from an investor's perspective," he adds.

Stock market performance will also depend upon the extent of revival in rural consumption. "A good harvest season is likely to push up consumption in India with increase in rural income and would augur well for FMCG and consumer durables," says Bobade of Axis Securities.

While no major disruption is likely in the IT sector, infrastructure sector will depend upon government initiatives. "The IT sector provides an opportunity for steady growth, but global uncertainties might put pressure on margins. Return ratios and valuations are attractive though. The government's focus on infrastructure and private investment opportunity provided via tax cuts may bring capex recovery, which would be beneficial for the capital goods sector," adds Bobade.

Mutual Funds

Large-cap and multi-cap funds emerged as clear outperformers in 2019. The large-cap category returned 10.54 per cent while multi-caps gave 9.21 per cent (Value Research Online; December 20). Mid-cap funds gave subdued returns of 1.20 per cent and the small-cap category gave negative returns of 3.90 per cent. Among sectoral funds, banking was a clear winner with 15.20 per cent returns.

"The past two years have seen some significant regulatory changes from categorisation of mutual fund schemes to cap on expense ratio. Year 2020 should be a time for the industry to assimilate these changes. On the fixed income side, we expect returns from liquid funds to move with a downward bias, while overnight funds as a category may see higher inflows," says G. Pradeepkumar, CEO, Union AMC.

Another move by Sebi, aimed at protecting the interests of both existing and new debt fund investors, was to allow sidepocketing in debt mutual funds. This allows funds to segregate their exposure in a stressed company and thus manage the redemption pressure.

Direct mutual funds, which charge no distribution commission from investors, are gaining traction. Players like Paytm Money, Groww, Goalwise, Kuvera and others gained good initial response. "The MF industry has just about 19 million investors and we anticipate that this number will double by 2025; hence, our decision to launch a simple and easy to invest/navigate experience for first-time investors. Today, 70 per cent of our users are first-timers," says Pravin Jadhav, Managing Director and CEO, Paytm Money.

Direct MF platforms are targeting seasoned investors too. Ankur Choudhary, Co-founder and CIO, Goalwise.com, says, "On Goalwise, investors just need to select their goals and risk profile, and get a customised investment plan with recommendations and asset allocation based on our algorithms."

Digital distribution platforms for regular schemes are also not leaving any stone unturned to attract investors with unique offerings, mostly in handholding and advisory. "If you understand mutual funds, opt for direct plans. But if you need advice and guidance - setting goals, choosing the right funds, knowing when to exit and how to exit - an unbiased adviser not just takes care of the basics but is with you every step of the way," says Sanjiv Singhal, Founder, Scripbox.

Debt and Fixed Income

Interest rate and yield on debt products have fallen to record levels in 2019. There is little likelihood of them moving up for the most of 2020; any increase may take place in the second half of the year.

The debt category faced many challenges in 2018 and 2019. The fear of default has made investors wary even as the corporate sector tries to bring down its debt. "There is increased risk aversion and investors are being extremely cautious due to defaults by companies. The credit defaults led to exit from credit and corporate bond funds towards liquid funds," says Mrin Agarwal, financial educator, money mentor and founder of Finsafe.

While debt investment remains a safer option than equities, it has inherent risks. When you go for unsecured debt, you depend mainly on the issuer's reputation and credit rating. But with debt instruments, even with the most reputed companies, do your due diligence and consult experts before investing.

For investors who have higher risk appetite, P2P lending platforms are emerging as a new avenue for debt investments. The Reserve Bank of India recently raised the lending limit from Rs 10 lakh to Rs 50 lakh. "A lot of wealth managers and financial advisers were worried about the extent to which they can recommend P2P as an asset class because of the limitation on absolute exposure. With Rs 50 lakh per investor now, advisers would be interested in actively recommending P2P platforms that have reported low NPAs (non-performing assets) on a consistent basis," says Amit More, Founder and CEO, Finzy, a P2P platform.

Insurance

The insurance industry too faced many path-breaking changes in 2019 which will have a far-reaching impact. "Right from the larger implementation of chatbots, self-help web modules, 24x7 digital access to service and solutions and innovative digital service desks, consumers are now more empowered to take the right decision with greater product and service knowledge," says Prashant Tripathy - MD & CEO, Max Life Insurance.

The insurance regulator has brought linked pension products on a par with the National Pension Scheme (NPS) by allowing up to 60 per cent withdrawal. Insurers too will benefit from regulatory sandbox approach being adopted to bring innovation in products and services.

"Use of artificial intelligence and analytics will significantly improve customer experience. A shift from push products (traditional plans) to pull products (pure protection) driven by awareness among the internet population is expected. The industry will see more byte-sized products distributed through technology advancement," says Naval Goel, CEO and Founder of PolicyX.com

The health insurance segment also witnessed a plethora of changes in 2019. "Inclusion of mental health-related services is a major area of change. Many insurers have started including mental illness in their products. We expect to see new launches, which will include both OPD and IPD," says Ashish Mehrotra, MD and CEO, Max Bupa Health Insurance.

Disease-related products and wellness plans are on the rise. "We expect disease management and wellness to come into shape by next year with insurers introducing disease-specific products for cancer, diabetics, etc. A major focus will be on wellness-specific services in new products," says Mehrotra. In these products, policyholders get incentives from insurers to remain healthy. "Customers will have a roadmap in front of them about how their adoption of wellness can help them win reward points and how they can use these points to enhance their fitness and healthcare regime," says Shreeraj Deshpande, Chief Operating Officer, Future Generali.

Another significant innovation in the insurance industry is micro insurance products. "This year saw a rise in byte-sized health insurance products and health insurers are betting big on this to drive the next phase of growth," says Mehrotra.

Motor insurance is poised to undergo significant changes. The latest exposure draft by the Insurance Regulatory and Development Authority of India (Irdai) on improving motor insurance policies is expected to be implemented in 2020. "The draft will bring in new developments like adoption of telematics to promote the concept of pay-as-you-drive and pay-as-you-go. The concept of D-Linked products is also expected to be introduced (base policy from one insurer and add-ons from another)," says Vaidyanathan Ramani, Head-Innovations and Product, Policybazaar.com

Travel insurance has seen an increase in penetration as online travel portals integrate bookings with insurance. However, this was prone to mis-selling as many customers were not aware that they were buying insurance as well while making bookings. Irdai has directed all the travel insurance companies to make sure that the travel insurance coverage option is not pre-selected as a default option when purchasing any travel product (flight tickets, hotel bookings, etc). "The regulator made it clear that covers towards domestic travel shall not be received more than 90 days in advance to the date of travel while covers towards overseas travel may be issued at any time regardless of the date of travel," says Vaidyanathan.

Loans

In 2019, borrowers saw EMIs fall as interest rates continued to decline till the end of the year. The RBI repo rate, which stood at 6.5 per cent at the beginning of the year, came down to 5.15 per cent. "The RBI has reduced repo rates multiple times in the last two years but due to the recent liquidity and other (banking) crisis, the rates havent reduced for end customers. They may reduce in 2020 as and when the environment becomes more stable," says Rajan Bajaj, Founder and CEO, Slice, which offers EMI cards.

The old home loan borrowers under the MCLR (marginal cost of funds based lending rate) regime can expect rates to fall in 2020. The RBI's efforts to bring transparency in the way lenders charge interest rates from retail borrowers and make the interest rate transmission more effective resulted in introduction of external benchmark linked-floating rate loans in October 2019. Most banks have linked interest rates of their floating retail loans to the repo rate. So, any change in the repo rate will automatically be passed on to such borrowers. "The external benchmark regime also allows banks to change other components of the spread once in three years. So, borrowers of floating rate loans should compare their lending rates with those offered by other lenders, if and when their spread undergoes a change," says Naveen Kukreja, CEO and Co-founder, Paisabazaar.com.

Many fintech lenders have entered segments that cater to borrowers not covered by traditional lenders, such as gig workers, young students, people new to credit, and so on. This segment is growing thanks to innovative credit risk assessment tools. "We assess customers on many cash flow-based and non-traditional data points like social network. The final model is a combination of statistical analysis and algorithm score based on machine learning built on these thousands of parameters," says Bajaj of Slice.

Another example is of CareCover, a fintech firm specialising in loans for medical emergencies. "CareCover offers pre-approved loan cards to cover all in-patient and day care surgeries. The limit for the cards is from Rs 50,000 to Rs 5 lakh. It covers all pre-existing diseases and has no limit on the type of treatment or restriction to a network hospital. There is no co-pay or deductible," says Nivesh Khandelwal, CEO and Founder, CareCover. There is an annual membership though.

The increase in lending cap to Rs 50 lakh will play in the favour of fintech P2P lenders in 2020, giving them a boost.

Cashless Payments

Improved technology has made money transfers more convenient. In India, starting from prepaid wallets, online money transfer has seamlessly transitioned to bank account-linked UPI platform. The number of UPI transactions rose from an average of 44 crore per month in 2018/19 to 122 crore in November 2019. The spread of UPI has led to the emergence of new players like Google Pay besides Paytm and PhonePe. Amazon Pay started UPI payment transfer in 2019. In 2020, WhatsApp is likely to pose a big challenge when it launches its payment service.

The competition among digital payment players is good news for users. "Technological developments, in terms of product stack for digital payments, have become much more polished. In fact, payment across borders is now possible through cards, wallets and apps, which is why customers are able to make payments through the same infrastructure," says Byas Nambisan, CEO, Ezetap.

Further convenience came by the way of contactless on-tap payment through mobile phones without using an app, a service that SBI Card has started providing. This is a step ahead of contactless on-tap payment with cards.

Voice control technology is poised to climb to the next level. "We observed that the influence of audio and voice command systems was extremely high. Increased access to technology like voice control smart speakers, Air pods and eco buds helped people gain information just with a voice command. Voice-based commerce will be a dominating trend in 2020," says Vivek Kumar Singh, Chief Financial Officer, ToneTag.

@naveenkumar80