Indian Life Insurers May Invest $25 Billion in Shares, SMC Capitals Says

India’s decision to allow life insurers to offer unit-linked plans, coupled with a state share- sale program, may raise investments in stocks by these companies to $25 billion this fiscal year, SMC Capitals Ltd. said.

The increase of as much as 48 percent in these investments will mainly come from the primary market and from buying shares in public offerings of state-owned companies, said Jagannadham Thunuguntla, chief strategist at New Delhi-based SMC Capitals. His estimate is 19 percent higher than the average of $21 billion for the fiscal year starting April 1 by ICICI Prudential Insurance Co., Bajaj Allianz Life Insurance Co., SBI Life and Birla Sun Life Insurance Co.

“The new law will help the insurance companies sell equity-linked products aggressively and in turn they will invest a larger sum in the stock market,” Thunuguntla said in a phone interview yesterday. “The insurance regulator may come out with a new set of guidelines to ensure more transparency in the unit- linked products.”

India, which changed the rule on unit-linked plans on June 18, has formed a committee to sort out jurisdiction issues between the Securities & Exchange Board of India and the Insurance Regulatory Development Authority, the country’s two financial regulators, the Press Information Bureau said in an e- mailed statement on June 19.

Unit-linked products are insurance plans sold by life insurers that invest the money collected into equity and debt markets.

Barred

The Security Exchange Board, which regulates the Indian stock market, on April 9 barred 14 life insurers from selling the products, saying they were like mutual-fund plans and were sold without obtaining the equity-market regulator’s approval. The insurance regulator on April 10 countered the ban. The regulators asked the court to rule on the issue.

Prime Minister Manmohan Singh wants to raise 400 billion rupees ($8.7 billion) in the year ending March 31 selling shares in one state-run company almost every month. The government said in January it may sell shares in 60 companies to shrink its budget deficit to 5.5 percent of gross domestic product this fiscal year from 6.9 percent last year.

“There will be no takers for mutual funds because they won’t be sold and Indian investors will be flooded with unit- linked insurance products as they have very high incentives for the agents,” Dhirendra Kumar, managing director of Value Research Ltd., a company that tracks Indian mutual funds, said in a phone interview from New Delhi yesterday.

To contact the reporter on this story: Abhishek Shanker in Mumbai at ashanker1@bloomberg.net

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