Saturday, 3 January 2015

Increase of F.D.I. limit in Insurance Sector to 49 percent from the existing 26 percent: Impact on Indian Economy and Indian Stock Market

The Indian Government Recently approved the limit of FDI in insurance sector to 49 percent from the existing 26 percent. The stock market has reacted positively to the increase of FDI limit in insurance sector. The higher FDI capital will immensely help the insurance sector which is extremely short on investment.

FDI in insurance sector inculcates the saving habits, which in turn generates long-term invest able funds for infrastructure building. In India, insurance sector is one of the most important sectors as it ensures constant inflow of funds – the payout is staggered and contingency related- thereby making it readily available for investment on infrastructure building. Insurance sector contribute to GDP, is quite insignificant. This will mark the new beginning in the insurance sector and will bring a lot of capital inflows in the Indian Economy.

Effects on Indian Economy and Indian Stock Market:
·         This Insurance Laws Bill, a rise to 49% will be a composite cap- which means that foreign capital can flow in either as direct investment. So foreign investors can either directly buy equity from the company or can buy shares on the stock market.
·         It will lead to hike foreign holding in insurance joint ventures to 49 percent     which means that there will lot of foreign player coming to Indian Market for direct investment.
·         The increase in the capital will help to increase Infra Investment with the help of private players or the foreign entities, in the Indian Market.
·         Increase capital inflow- Most of the private sector insurance companies have been making losses. The increase FDI limits has bought some much needed relief to these firms as the inflow of more than 10,000 crore is expected in the near term this could go up to 40,000 crore in the medium to long term.
·         Job creation- With more money coming in, the insurance companies will be able to create more jobs to meet their targets of venturing into under insured markets through improved infrastructure, better operations and manpower’s

Our is of the view that if you are an Equity Investor can invest in finance sector companies with one to three year perspective. 

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