Monday, June 13, 2011

Reliance Industries Ltd (RIL) enters Insurance market

Reliance Industries Limited has bought stake in two Insurance companies. Bharti AXA Life Insurance Co. Ltd and Bharti Enterprises Ltd. These stakes were previous held by Bharti Enterprises. Reliance now has 76% stake in both the entities.

RIL is looking for new avenues to invest their surplus cash. With the oil and gas business, not making profits any time soon, immediate sources of income are required. Hence the financial sector which is booming at the moment seems to be a good option for investment.

However it will be interesting to note that the RIL stocks lost value by 1% when the markets closed.

When the deal goes down Reliance will be the owner of 57% of the stocks and 17% will be held by Reliance Industrial Infrastructure Ltd in both life and general insurance businesses. Bharti had been holding this stock since 2006. But they need cash and their long term plans do not have space for Insurance.

This could mean some major changes in the Insurance market. Reliance could either revolutionize the private insurance sector or ruin it. With so much capital backing the new entity can afford to keep the premium amounts low and last out longer than the competition. Let us wait and watch what happens.

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