The much expected increase in the foreign direct investment (FDI) limit in the insurance sector from 26 per cent to 49 per cent is a positive move but not a surprise as it has been long overdue.
In the past, most of the foreign players have maintained that they want to hike stake in their Indian business. However, it has to be seen how many investors will actually raise their stakes as with a 49 per cent holding nothing much changes except economic interest in the business.
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The rise in FDI limit is certainly good news for large Indian insurance companies, such as HDFC Life and Prudential ICICI Life Insurance, that were desperately looking for an opportunity to encash their holdings after over 10 years of investment in the business. Their investment would also fetch good valuation as most of them are now profit making.
"World-over it's been seen that the promoters have reaped benefits from the stake sale and the money has not come into the business," says Deepak Mittal, MD & CEO of Edelweiss Tokio Life Insurance.
However, this is good news for the smaller and new players who will now rethink their strategy. Smaller players, struggling to grow the business, can now put in fresh money from the stake sale in the high capital intensive life insurance business in India.
While the FDI hike has been a positive step, one will have to wait for the fine print.
"We have to wait and watch as the insurance bill will have to be passed in the parliament before the stakes can be hiked by foreign partners," says Mittal.