Forex

The Government’s winning of the trust vote has raised the insurance industry’s hopes of seeing foreign direct investment in the sector being raised from 26 per cent to 49 per cent.

Analysts, however, believe that the Government may first look at tackling larger issues such as inflation before pushing forward the reforms agenda.

Shikha Sharma, Managing Director, ICICI Prudential, said that the hike in FDI would ensure that capital would no longer be a constraint to the growth of insurance companies.

With many companies nearing their tenth year of operation, more FII participation will help in better discovery of company valuations,” she said.

As insurance companies such as ICICI Prudential, SBI Life and HDFC Standard Life, are two years away from entering their tenth year of operation, listing is an option they might look at first.

Insurance regulations currently allow companies to list only after their tenth year of operation. Promoters are also expected to dilute their stake in the insurance company after the tenth year.

The nature of the agreement with the foreign partners could also be a factor to be considered.

“If the nature of the existing agreement is based on market price, then the foreign partner could look at listing the company and then buying the balance stake. If it is based on a formula method, then they may buy the additional stake and then list,” said Ms Sharma.

ICICI Prudential has a market-based pricing agreement with Prudential.

U.S. Roy, Managing Director and CEO, SBI Life, said that the hike in FDI would help in building a stronger and long-term relationship with the foreign partner. “It will also help the domestic partner in freeing its investment for channelling to other areas,” he said.

Other reforms

Apart from FDI in insurance, the industry is looking forward to a number of reforms to be pushed through — allowing foreign investors voting rights in proportion to their equity holding in banks from the current cap of 10 per cent, passing the Pension Fund Regulatory and Development Authority (PFRDA) Bill that allows private sector more participation in the pension sector and further disinvestment in public sector companies.

Dharmakirti Joshi, Director and Principal Economist, Crisil, said that the Government’s priority would, however, be tackling inflation, managing coalition dynamics as well as the elections. “Pushing forward PSU disinvestment will help in reducing fiscal stress,” he said.