Why is the price of insurance stock rising again?
ShareSansar, July 6:
From the past few days the prices of insurance is surging again.The table below shows the price movement of Insurance Sub-index over the last few days.
|
S.No. |
Date |
Insurance Sub-Index |
Absolute Change |
Percentage Change |
|
1 |
2014-06-23 |
3703.49 |
-1.81 |
-0.05 % |
|
2 |
2014-06-24 |
3752.33 |
48.84 |
1.31 % |
|
3 |
2014-06-25 |
3788.57 |
36.24 |
0.97 % |
|
4 |
2014-06-26 |
3840.83 |
45.31 |
1.19 % |
|
5 |
2014-06-29 |
3870.5 |
29.67 |
0.77 % |
|
6 |
2014-06-30 |
3917.9 |
47.4 |
1.22 % |
|
7 |
2014-07-01 |
4177.26 |
248.45 |
6.32 % |
|
8 |
2014-07-02 |
4357.94 |
180.68 |
4.33 % |
So what is the reason behind such drastic rise? ShareSansar talked with a few experts on this matter to understand their views on the latest wave of surge in the price of insurance scrips.
According to Uddhav Siwakoti, the price of the limited insurance stocks is increasing not only because the demand for these scrips remain high, but also rumors are again doing rounds in the market that the Insurance Board is about to issue a directive asking all life insurers to ensure a paid-up of Rs 2 arba and to the non-life insurer to Rs 1 arba.
“Yet another reason for this surge is that the investors in general know that the prices of these scrips are bound to rise further at the end of the fiscal year Hence these factors are fueling the rise in the price of insurance companies,” he notes.
Narendra Sijapati, President of the Broker’s Association, agrees.
“There is a buying pressure from a segment of institutional investors besides the retail investors mainly due to expectation that the price of these scrips will inevitably surge further after the end of the fiscal year as more and more BFIs will target the lucrative insurance scrip as cross-holding is not allowed,” he says.
BFIs usually do not invest in shares toward the end of the fiscal year as it affects their balance sheet since it has to provision equivalent amount if they invest there.
Given the situation, it is not difficult to understand that other institutional investors, apart from the BFIs and insurers, as well as retail investors are investing in the insurance stocks expecting good returns within a month or two.
Raj Kumar Timilsina, Chairperson of Investor’s forum, agrees.
“Yes there is a growing demand for insurance scrips even though the prices are already high due to rumors that the insurance companies will be asked to shore up their capital base,” he says. “But that it will take more time if we are to believe what government officials say.”
He went on to add that the demand for insurance scrips has never quite reduced owing to supply constraints.
