With close to Rs 30,000 crore of insurance IPOs lined up over the next few months, significant participation by foreign portfolio investors’ (FPI) is expected to take the rupee to higher levels. Five insurance companies — SBI Life Insurance, HDFC Standard Life Insurance, New India Assurance Company, General Insurance Corporation of India (GIC Re) and ICICI Lombard General Insurance — are expected to raise more than Rs 30,000 crore in the next few months.
Ashwini Kapila, managing director and head of financial institutions group at Barclays India, points out that insurance IPOs are expected to see considerable FPI interest, driven by strong prospects of the financial services sector. “The India growth story will first reflect in the financial services space and you are already seeing this in the valuations of private sector banks and NBFCs. Given the robust pipeline and strong interest in Indian equities from FPI, it is reasonable to expect insurers to attract $1.5bn of inflows via IPOs,” Kapila observes. On Monday, the rupee closed flat against the US dollar at 64.14. On a year-to-date basis, the currency has provided a return of 5.9%.
Considering that foreign investors have almost fully utilised the investment limits permitted in central government securities and corporate bonds, Indian equities could be the next route for foreign investors to have exposure to the Indian market. So far, FPIs have infused close to $19 billion into Indian debt and $7.65 billion into equities. General category FPIs have so far utilised 99.45% of the permitted limit of Rs 1.87 lakh crore in central government securities while long-term FPIs have utilised 84.12% of the permitted Rs 54,300 crore. The limits also been almost fully utilised in the corporate bonds segment, with foreign investors having used 99.74% of the permitted limit of Rs 2.44 lakh crore. Ashish Vaidya, managing director and head of trading at DBS India, believes if global macros remain stable, rupee might hit 62-62.50 levels by December. “Given how the rupee volatility has been contained by the Reserve Bank of India over the last four-five months, we think the RBI will continue to intervene in the markets, preventing any one shot meaningful appreciation of the rupee due to any large inflows,” Vaidya said. Indeed, with the increase in FPI inflows and appreciation of the rupee, the RBI has shored up forex reserves which now stand at $393.61 billion.