Shares of India’s insurance companies, HDFC Life Ltd., SBI Life Insurance Ltd. and ICICI Prudential Life Ltd. fell as much as 6% on Saturday, February 1 after the Union Budget speech by Finance Minister Nirmala Sitharaman. The stocks recovered from the lows as well.

The stocks had earlier gained up to 4% when the government had announced that the Foreign Direct Investment (FDI) in the sector will be increased to 100% from 74% earlier.

As of the December quarter, foreign holding in HDFC Life stood at 25.14%, for ICICI Lombard, it stood at 24.36%, while for ICICI Prudential and SBI Life, it stood at 12.78% and 22.48% respectively.

The FDI limit was hiked to 74% from 49% during the Budget of 2021.

“The Budget 2025’s increase in FDI to 100% from the current 74% will aid foreign insurers’ interest in investing in the growing Indian insurance market, where we expect strong premium growth to boost profitability. Foreign investment is credit positive for the Indian insurance sector as it increases product innovation and benefits areas such as capital adequacy, financial flexibility, and governance standards,” Mohammed Ali Londe, Vice President, Senior Analyst, Moody’s Ratings was quoted as saying.

However, a potential push towards the new tax regime, by increasing tax exemptions to income up to ₹12 lakh, with the help of rebates, may have sent stocks lower as the new regime does not include any exemption for insurance.

The documents further disclosed that the government has not done away with the ULIP investment threshold of ₹2.5 lakh. Returns from ULIP policies, which have a premium in excess of ₹2.5 lakh paid will have capital gains taxation of 12.5%.

Earlier, returns from ULIP policies (premium of over ₹2.5 lakh) were being taxed as income from other sources as appropriate income tax slab.

Shares of ICICI Prudential are trading 1.9% lower at ₹605.

Shares of HDFC Life are trading 1.6% lower at ₹627.85.

Shares of SBI Life are trading up to 1.1% lower at ₹1,467.35.