Foreign investors are steadily increasing their bet on listed private insurers. The insurance sector received a net investment of ₹9,222 crore between April and mid-August period. The sector is the top gainer of foreign equity inflows in the current financial year.

According to data available with depositories, foreign portfolio investors (FPIs) made a net investment of ₹7,761 crore in the insurance equities in the first quarter of FY20. Subsequently, they made a net investment of ₹979 crore in July and ₹482 crore till the first half of August, up to which data is available.

FPI’s investment in the insurance sector in July and August, albeit lower than previous months, assumes significance considering that the foreign investors have been a net sellers across all major sectors over the last two months.

Budget impact

Spooked by the ‘super rich’ tax surcharge announcement in the Budget and poor earnings in a tanking economy, FPIs pulled out ₹30,011 crore from the Indian equities in July and August. However, insurance is the only major sector to witness FPI inflow in every single month in the current calendar year. “Insurance companies have seen a lot of buying from FPIs and domestic institutions over the 4-6 quarters. Greater visibility in revenues and margins from the current low base seems to have attracted FPIs to this space,” said Deepak Jasani, Head Retail Research, HDFC Securities.

The insurance sector was also among the top three gainers of FPI investment in the equity segment in the previous fiscal. In FY19, the FPIs made a net investment of ₹9,623 crore in the sector. Consequently, FPI shareholding in the four listed private insurance companies have increased from 3 per cent to as high as 15 per cent.

“Institutional players tend to look at insurance companies as long-term structural bets. They also look at insurance companies as stable companies in a turbulent market,” Jasani said.

Strong growth in premium collection supported by a surge in the annuity and protection business of private insurers have made their stocks attractive for investment. For instance, SBI Life Insurance and HDFC Life Insurance have registered a new premium growth of 52 per cent and 47 per cent in the first quarter of FY20.

“FPI investments, as we know, are generally meant for long-term structural change. We believe that the Indian insurance space is experiencing a structural growth story backed by financialisation of savings [insurance funds as a % of household savings are at 16-17 per cent],” Emkay Global Financial Services said.

“We expect private players to register a growth of 15-20 per cent over the next decade with protection and annuity products seeing much faster growth than the savings product portfolio, auguring well for the insurance space,” the research firm added.

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