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See Rs 20Kcr inflows due to higher insurance FDI: Macquarie


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Following the passage of the Insurance Bill in Rajya Sabha late on Thursday – which raises the FDI cap in the sector to 49 percent from 26 percent – hopes are up that foreign partners of insurance companies will make a beeline to raise stake in existing JVs.

Speaking about the possible capital inflows into the country, Suresh Ganapathy of Macquarie Capital said he expects Rs 20,000 crore from foreign insurance partners in the coming days. Ganapathy says the move will help give clarity on valuations of insurance companies as well. However, regulatory changes are likely to hamper valuations of those banks that sell insurance products. The house has underperform rating on  SBI with a target price of Rs 250 per share.

On the back of IIP nos that came in tad higher than expectations and the CPI nos that shot up on seasonal irregularities, the RBI is likely go in for another 50 bps rate cut, he said.

Below is the transcript of Suresh Ganapathy’s interview with Latha Venkatesh & Sonia Shenoy.

Latha: What is your take on the legislative victory for the Bharatiya Janata Party (BJP) yesterday? Is this very big for the stocks that are listed?

A: If you look at some of the banks, their contribution of life insurance to the banking overall, some of us is not that great maybe at the most 4-5 percent of the value comes from life insurance business but some of the non banking financial companies (NBFCs) like  Max India and Reliance Capital , of course the contribution of life insurance is higher.

This definitely is a positive move because all the analysts are struggling to value these life insurance companies in the absence of disclosure. However, there will be some transparency in the market, the valuation benchmark being established and better disclosures on things like embedded value which establishes a proper valuation benchmark or reference point and overall the foreign capital will come into the country which is considered to be positive. 

Sonia: Talking a bit about foreign capital, we were speaking with Jayant Sinha yesterday and he pointed out that to increase the insurance penetration from 3 to 6 percent, Rs 40,000 to 50,000 crore is needed and if 49 percent of that comes from foreign direct investment (FDI) then we are looking at something to the tune of around Rs 20,000 crore-25,000 crore. Do you think this is realistic estimate and something that can come in?

A: It is pretty much reasonable because for example if you were to look at the top two life insurance companies in the private sector which is ICICI and HDFC , both put together are valued between Rs 60,000 crore and Rs 70,000 crore. However, to assume 20 percent of that money is going to be contributed by the foreign partner, easily will get Rs 12,000 crore-13,000 crore from the foreign partner. So the overall number being quotes at Rs 20,000 crore is not an incorrect estimate and we can get that much amount of capital from the foreign partners over the course of next two-three years.

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