Insurance companies’ stocks sizzled on the Bombay Stock Exchange (BSE) on Wednesday as the government inched closer to passing the long-pending Insurance Bill that will raise the foreign investment cap to 49% from 26%.
India’s private insurance industry needs an estimated $6 billion or about Rs 36,000 crore of capital over the next five years.
Life insurance penetration, defined as the ratio of premium underwritten in a given year to the GDP, is about 3.17% of GDP in India, lower than over 10% in Japan and about 6% in Australia.
Of the 23 life insurance companies in India, only 17 reported profits in 2013-14.
While Max India shares rose 5.34% on the BSE, Reliance Capital jumped 4.34% and Aditya Birla Nuvo moved up 0.71%.
Several insurance companies could now make an entry into the Indian market while for many existing ones, the foreign partners could bring in a larger chunk of funds on the table. Finance minister Arun Jaitley said that global insurance companies are waiting to invest in the sector.
Companies including PNB Metlife, Max India Group, Bharti AXA Life Insurance Co Ltd could benefit, sources said.
According to an estimate by consultancy firm KPMG, about Rs 25,000 crore could flow into the sector in case the FDI limit is hiked in the next two to three years.
“Every company will now have multiple options available to them…for some of the more established players it opens up possibilities for IPOs as well as capital for acquisitions,” said Rajesh Sud, CEO & MD, Max Life Insurance.