Budget 2025 | 100% FDI in insurance a positive for the sector but not for its stocks

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Subscribe to enjoy similar stories. The government in its Union Budget for 2025-26 proposed raising the foreign direct investment (FDI) limit for India’s insurance sector to 100% from 74%—meeting a long-awaited industry demand. So why did the stocks of most Indian insurance companies end the day flat to negative? The simple reason for that being that well-established life insurance companies in India don’t need the expertise of foreign players through strategic stake sale any longer.

Also, the interest of foreign companies in Indian insurance has declined over the years. Standard Life (now known as ABRDN Plc.), New York Life Insurance Co., Old Mutual Ltd after partnering with HDFC Life Insurance Co. Ltd, Max Life and Kotak Life, respectively, have exited India.

There is also a need to distinguish between the government approved limit and company specific limit approved by the board of directors of a company. For instance, even with the foreign ownership limit at 74%, HDFC Life had capped it at 49%. The lack of interest of foreign investors in Indian life insurance companies is evident from the fact that not only is the existing limit of 49% underutilized, their shareholding has been gradually falling—from 31.4% in December 2023 to 25.3% in December 2024.

The same is true for ICICI Prudential Life Insurance Co. Ltd, which has an approved limit of 74%, but actual utilization stands at just 36.8%. ICICI Lombard General Insurance Co.

Ltd also has less than 25% foreign shareholding despite the limit of 74%. This brings us to the moot question: why would established players like, say, SBI Life Insurance Co. Ltd be happy to let their shareholding drop below 26%? Effectively, this means that even if 100% FDI is permitted in the