Reform Push Continues

Overview

The Government of India, following up on its reform initiative approved legislative changes that will hike FDI limit in insurance from 26 per cent to 49 per cent while allowing the same amount in pension sector. The big test for the Government, however remains its passage in parliament as being legislative changes, they must pass the test of parliament. But going by the mood of the opposition the task couldn’t be tougher. However, there were other less contentious legislation such as modernizing the Companies Act and the forward contracts which may not face such opposition in Parliament

Key measures announced

• Up to 49 percent FDI will be allowed in Indian insurance companies as against 26 per cent earlier.
• In pensions sector, where no FDI was allowed to outside investors, foreign groups will be allowed similar limit as in case of insurance. This in effect means that if Parliament clears 49% FDI in insurance, 49% would be allowed in pension as well.
• A new Companies Bill was also adopted in the cabinet meet in order to make corporate governance more transparent to share-holders.
• The government also approved the 12th Five-Year Plan
• Announcements were also made on to operationalize infrastructure debt fund

Our View

The Government once again reiterated its intent on bringing the economy back on track amid stiff resistance from opposition parties regarding the contour of the legislations. However, there are less contentious legislations which may not face much opposition in parliament. The key positive which was cheered by markets was the fact that policy paralysis of the Government seems to be a thing of the past and while EPS upgrades may not happen immediately but PE expansion seems imminent. We urge the investors to enter the market and join the rally which still seems to have some legs.

By Rajat Gupta – Research Analyst – Concept Securities Private Limited