The amount of Indian insurance stocks foreign investors hold has grown ten-fold in just about a year
- Foreign portfolio investors owned $10.5 billion worth of shares of Indian insurance companies at the end of November 2019, up from just about a billion dollars at the end of October 2018.
- Losing favour with the investors are Indian tech stocks like TCS, Wipro and Mindtree where prospects are looking bleak due to slower business and shrinking margins.
- Private insurance players like Bajaj Allianz Life, Kotak Life, and Tata AIA Life clocked a 25.9% growth in insurance premium in November alone
Foreign portfolio investors (FPI) — foreign investors who invest in shares and bonds — have been net buyers in the Indian market for three straight months at the end of November 2019, pumping in a total of $3.14 billion last month alone. More than half of that money has gone into buying shares in the banking and financial services industry.
The country’s insurance companies have received the lion’s share of the inflows. At the end of October 2018, foreign investors had a billion dollars invested in Indian insurance stocks. At the end of November 2019, the exposure stands at over $10.5 billion, according to a report from Edelweiss Alternative Research. A lot of that money has come from the sale of technology stocks.
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The foreign investors’ bet on Indian insurance companies seems to be the right decision. The business growth for insurance majors spiked in November 2019. Private players like Bajaj Allianz Life, Kotak Life, and Tata AIA Life clocked a 25.9% growth in insurance premium in November alone, according to a research report from Emkay Financial Services. If someone waited for the data to buy these stocks, they had already missed a big bull run.
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“The market is extremely positive about the insurance sector, because growth here has been extremely strong over the next 10-20 years. On paper, these stocks may look extremely highly valued, but you need to look at them in the light of an extremely long growth runway that lies ahead,” Srinivasan Subramanian, MD for Investment Banking at Axis Capital, told a television channel ET NOW.
Here’s why foreign investors are pulling money out of IT
The prospect for India’s tech stocks is looking bleak. The business is slower and the margin is shrinking, with the exception of Infosys.
| Company | Margin compression |
| TCS | -57 basis points |
| Tech Mahindra | -40 basis points |
| Mindtree | -89 basis points |
| L&T Tech | -26 basis points |
| Cognizant | -34 basis points |
| Infosys | +21 basis points |
Source: Investec SecuritiesThe troubles are far from over. “We continue to expect continued pressures on revenue leading to decelerating revenue growth and PE (price to earnings) multiple contraction driven by weakness in BFS (banking and financial services) and retail. Amongst Tier-1s, TCS saw the biggest consensus EPS downgrade while Mindtree saw the biggest downgrade among Tier-2s in the last 3 months,” Investec Securities said in its December 4 report.
| Stock | One year Change |
| HCL Tech | 13.01% |
| Tech Mahindra | 6.97% |
| TCS | 6.17% |
| Infosys | 0.74% |
| Wipro | -2.39% |
| Mindtree | -11.98% |
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