HIMALAYAN NEWS SERVICE
KATHMANDU: Investors have started being attracted towards insurance stocks due to the prospect of rights and bonus shares being issued by insurance companies in current fiscal.
Insurance firms have declared handsome dividends from profits of last fiscal. The dividends announced is better than that of commercial banks. They have been planning to declare bonus shares ranging between 70 per cent and 6.5 per cent.
The regulator — Insurance Board (IB) — has forbidden insurance companies from distributing cash dividends to investors if they have not increased the paid up capital to the required level.
By the end of current fiscal year, regulation requires non-life insurance companies to have a paid up capital of Rs 250 million and life insurance companies are required to increase their paid up capital to Rs 500 million.
Insurance companies are distributing bonus shares and in the later part of the fiscal year they will be issuing rights issue to increase their paid up capital.
Since the beginning of the fiscal, insurance subgroup has skyrocketed. In the last seven months, its index has appreciated by 75 per cent. The subgroup that stood at 489 points at the start of the fiscal year has gone up to 839 points by yesterday.
“Investors are vying for bonus and rights shares that the companies will issue to meet capital requirement, thus insurance stocks have become popular,” said share analyst Rabindra Bhattarai.
The share price of Nepal Life Insurance had shot past Rs 2000 after it announced its dividend last month. It is at around Rs 1970 at present. Likewise, the share price of LIC Nepal that distributed 62 per cent bonus shares is also nearing Rs 1000.
Dividends are one of the important features that a non-speculative investor takes into account before purchasing any stock. Dividends also help lessen the potential fall of a company’s stock price, thereby reducing volatility. At present, insurance stocks have become attractive for investors who look for underlying benefits such as cash dividends and bonus shares instead of short-term returns.
In the first six months of the current fiscal year, the turnover of insurance stocks stood at more than Rs 75 million, while a year back it was a little less than Rs 20 million. “In a growing market like Nepal, bonus and rights shares are considered appealing to investors so they are willing to bid higher prices keeping future prospects in mind,” he said.
Based on financials of last fiscal, insurance firms are expected to issue stock dividend and rights shares worth Rs 2.6 billion to reach regulatory capital requirement. LIC Nepal and Siddhartha Insurance have announced rights issue of 25 per cent and 90 per cent, respectively.