Insurance sector gets increased FDI limit in Budget; Should you shop insurer stocks on Dalal Street?

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Updated: Feb 01, 2021 2:37 PM

SBI Life Insurance jumped over 2% to reach a high of Rs 897 per share, HDFC Life Insurance was up nearly 2% at Rs 713 apiece, followed by ICICI Prudential Life. General Insurance Corporation saw the biggest surge, gaining 6% during the day.

Indigo Paints, IPOIndigo Paints was commanding a market capitalization of Rs 12,403 crore on listing.

Domestic insurance companies can now have as high as 74% foreign direct investment (FDI), an increase from 49% earlier, Finance Minister Nirmala Sithraman announced in her budget speech. With this announcement, listed insurance sector players were seen zooming higher during the day. SBI Life Insurance jumped over 2% to reach a high of Rs 897 per share, HDFC Life Insurance was up nearly 2% at Rs 713 apiece, followed by ICICI Prudential Life. General Insurance Corporation saw the biggest surge, gaining 6% during the day.

Bullish on Insurance space

“Bullish on insurance companies after the increase in FDI limit,” Vishal Wagh, Head of Research, Bonanza Portfolio told Financial Express Online. He believes that stocks such as HDFC Life and SBI Life Insurance are worth buying now and believes these will see good momentum in the coming months. Further, Wagh added that ICICI Prudential Life insurance is also a good buy.

Some say that the onset of the pandemic highlights the need for insurance and expect the sector to see increasing interest and business in the coming years. “Insurance India is one of the fastest-growing Insurance markets. Insurance tech has also generated high investor interest in recent years with companies like Policy Bazaar, Acko raising high amounts of FDI,” said Divam Sharma, Co-founder, Green Portfolio, SEBI Regd. Portfolio Management service. The increased FDI limit will help increase the penetration of insurance sector players while gradually reducing their cost. “Large private insurance companies including ICICI Pru Life, HDFC Life, ICICI Lombard, and SBI Life will benefit from the FDI limit increase,” he added

No positives?

However, Prayesh Jain, Lead Analyst, Yes Securities, does not see any benefit for the listed players. “I do not see any listed players being benefitted because they are not starved of capital and nor do they have any solvency issues,” Jain told Financial Express Online. He believes that unlisted players could benefit from the move. To the contrary, Jain sees some negative for the insurance space on the ULIP front where policy premium payable above Rs 2.5 lakh will not get tax benefits. SBI Life Insurance is his top pick in the sector.

The move could also benefit firms with insurance arms. “Could be a big boost for public banks having insurance arms to divest for raising capital,” said Chirag Nangia, Director, Nangia Andersen.

“Insurance is a capital intensive business and post the pandemic, many Indian partners are not in a position to invest further capital in their companies. Certain companies also require capital infusion to conserve Solvency Margins,” said Vighnesh Shahane, MD & CEO, Ageas Federal Life. He added that the increase in FDI limit will give the foreign promoter an opportunity to buy out their cash-strapped Indian partners if required and provide the needed cash infusion.

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