Aviva India bets on state-run banks’ recapitalization plan for business boost

Above, the headquarters of Aviva in London. The insurer is betting the Indian government’s $32 billion (SR120 billion) plan to rescue lenders burdened with record bad loans will boost their prospects. (Reuters)
Updated 23 November 2017
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Aviva India bets on state-run banks’ recapitalization plan for business boost

MUMBAI: Aviva’s India life insurance joint venture is raising its exposure to the country’s state-run banks as it bets the government’s $32 billion (SR120 billion) plan to rescue lenders burdened with record bad loans will boost their prospects.
The insurer also likes metals stocks and consumption-driven sectors, especially those that target rural consumers, but would avoid the non-bank finance companies, Prashant Sharma, chief investment officer at Aviva Life Insurance Co. India Ltd, said.
The 21 public-sector undertaking (PSU) banks, which are majority owned by the government and likely beneficiaries of the recapitalization, account for more than two-thirds of India’s banking assets. They also have bulk of the country’s record $147 billion soured loans.
The banks are less profitable compared with their nimbler private sector rivals and were largely not favored by investors until the recapitalization plan was announced.
The recapitalization triggered a rally in the state-run bank stocks, although that has since cooled as investors await clarity on the impact of the fund injections, much of which will be via recapitalization bonds.
“Some of the money has actually come out of the more expensive private banks to some of the PSU banks, the larger PSU banks which, after the recapitalization, would be quite healthy,” said Sharma, who oversees management of about $1.5 billion of Aviva India’s assets in debt and equity.
“I think the recapitalization provides them with the necessary fuel to start growing again.”
Sharma said he still liked private sector banks, but their expensive valuations meant he had to be selective.
The insurer is “significantly underweight” on non-bank finance companies (NBFCs) due to “rich” valuations and because the tailwinds that helped grow the financiers in the past years may be “coming to an end,” Sharma said.
Other sectors on the insurer’s radar were commodities and oil and gas.
Given its cyclical nature, it would be difficult to have a long-term position on the metals sector, Sharma said, although it looked attractive on a one-year to 1-1/2-year view.
“Thanks to China supply (side) reforms, commodity prices globally have bounced back from very low levels and with this kind of commodity price level, Indian metal companies are likely to do well for the next couple of years at least,” he said, adding oil and gas was another sector the insurer was positive on.
Having hit a string of record highs this year, Indian stocks may be due for some correction, but that would be “healthy” and corporate earnings should start recovering now, Sharma said.
India’s broader NSE index is up around 27 percent so far this year.


American Airlines ‘unaware’ of some Boeing 737 MAX functions until last week

Updated 15 November 2018
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American Airlines ‘unaware’ of some Boeing 737 MAX functions until last week

  • The FAA and Boeing are evaluating the need for software or design changes to 737 MAX jets
  • ‘Safety remains our top priority and is a core value for everyone at Boeing’

WASHINGTON: American Airlines Group Inc. said on Wednesday it was “unaware” of some functions of an anti-stall system on Boeing Co’s 737 MAX until last week.
Boeing and the US Federal Aviation Administration (FAA) issued guidance on the system last week after a Lion Air jet crashed in Indonesia on Oct. 29, killing all 189 people on board.
The FAA warned airlines last week that erroneous inputs from the system’s sensors could lead the jet to automatically pitch its nose down even when autopilot is turned off, making it difficult for pilots to control.
The system was designed to prevent the jet from stalling, according to information provided by Boeing to airlines.
“We value our partnership with Boeing, but were unaware of some of the functionality of the Maneuvering Characteristics Augmentation System (MCAS) installed on the MAX 8,” an American Airlines spokesman said.
“We must ensure that our pilots are fully trained on procedures and understand key systems on the aircraft they fly.”
Indonesian investigators said on Monday the situation the crew of a doomed Lion Air jet was believed to have faced was not contained in the aircraft’s flight manual. US pilot unions were also not aware of potential risks, pilot unions said.
The FAA and Boeing are evaluating the need for software or design changes to 737 MAX jets in the wake of the Lion Air crash, the regulator said on Tuesday.
The American Airlines spokesman said his airline was continuing to work with Boeing and the FAA and would keep pilots informed of any updates.
A Boeing spokeswoman said the manufacturer could not discuss specifics of an ongoing investigation but it had provided two updates for operators around the world that re-emphasize existing procedures to deal with situations relating to MCAS.
“We are confident in the safety of the 737 MAX,” she said. “Safety remains our top priority and is a core value for everyone at Boeing.”