Max India, Exide, RCap slip on profit booking after smart rally in December

NEW DELHI: Shares of companies related to insurance business came under pressure on Thursday, a day after the Cabinet approved the insurance amendment bill with a composite foreign investment cap of 49 per cent for presenting it in Parliament, incorporating the changes suggested by a House panel.

Insurance related companies have rallied up to 14 per cent in the month of December ahead of the Cabinet meet. Max India rose as much as 10 per cent, while Bajaj Finserve rallied as much as 14 per cent so far in the month of December.

Exide Industries rose 5.4 per cent, while Reliance Capital surged nearly 3 per cent in the same period.

The Rajya Sabha is likely to take up the Bill for consideration and passage next week.

At present only 26 per cent FDI is allowed in private sector insurance companies. The hike in foreign investment limit is estimated to attract about Rs 25,000 crore of overseas funds in the sector.

"The likelihood of insurance bill being passed is high now especially after the select committee tabled its report is not really a game changer when it comes to real economy. However, it is a significant event considering that it is the first important long pending reform legislation that this government is likely to pass," says P Phani Sekhar, Fund Manager-PMS, Angel Broking.

"This (bill) is more important for unlocking valuations because for the last five to six years the valuations of many of these groups have been suppressed now, it is a game changer from that point of view," he adds.

Sekhar is of the view that valuations of say a Bajaj or a ICICI Bank or a Max or an HDFC for that matter will have a better benchmark as far as the insurance pie is concerned - to that extent there might be some rerating beyond that I do not see how it will change things around quickly in the real economy.

Sanjiv Bajaj, MD, Bajaj Finserv in an interview to ET Now said the Insurance Bill provisions allow smoother working of industry. Composite foreign capital hiked to 49 per cent is a positive for the sector allow more flexibility to insurers.

It will be a positive for the insurance space over the long term. Foreign partner in insurance companies may hike stake depending on final norms, he added.