Insurance stocks zoom up to 9 pc after govt proposes to increase FDI cap in sector

Shares of companies related to the insurance sector closed the day with up to 9 per cent jump on Monday after the government proposed to increase foreign direct investment (FDI) limit in the insurance sector to 74 per cent.

The New India Assurance Company zoomed 8.94 per cent and General Insurance Corporation of India jumped 5.03 per cent on the BSE.

Further, ICICI Lombard General Insurance Company gained 3.84 per cent, HDFC Life Insurance Company gained 3.14 per cent, ICICI Prudential Life Insurance Company 1.90 per cent and SBI Life Insurance Company 1.20 per cent.

"Raising FDI in insurance from 49 per cent to 74 per cent is welcome. Market response to the budget reflects growth optimism," said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

The government on Monday proposed to increase the FDI limit in the insurance sector to 74 per cent, a move aimed at attracting overseas players.

In the Union Budget 2021-2022, Finance Minister Nirmala Sitharaman also said investor charter would be introduced as a right of all financial investors across all financial products.

She proposed to amend the Insurance Act 1938 to "increase the permissible FDI limit from 49 per cent to 74 per cent in insurance companies and allow foreign ownership and control with safeguards".

According to Mayur Dwivedi, Head – Business Strategy and M&A, Religare Enterprises Limited, "It is heartening to see that the government has finally addressed the long-standing demand of the industry by increasing the FDI limit in the insurance sector from 49 per cent to 74 per cent, subject to specific compliance. This move will allow foreign ownership and control safeguards, help liberalize the sector and improve penetration. The limit hike will also attract enhanced capital flow to the sector and help insurance companies to raise funds."

"The move to increase FDI in insurance from 49 per cent to 74 per cent bodes well for the companies who have been facing capacity constraints owing to lack of capital.

This move will help the companies raise fresh capital and enhance growth prospects," according to Prayesh Jain, Lead Analyst - Institutional Equities at yes Securities.