Shares of India's largest insurance company LIC and India's largest bank SBI are performing better than their competitors

LIC stock has gained 61% in the last one year. In comparison, HDFC Life Insurance, ICICI Prudential Life Insurance and SBI Life Insurance have lagged far behind with returns of only -10% to 13% during the same period.

Similarly, due to its high investment in infrastructure sector, SBI stock has gained 48%, while its peers HDFC Bank, Kotak Mahindra Bank, ICICI Bank and Axis Bank have gained only -3% to 24%. With no investment in infrastructure sector, Kotak and HDFC Bank are the worst performers and their stocks are giving returns of just -4% and 1% respectively.

Last year, LIC and SBI came under Sebi's scanner after the short-seller Hindenburg's report came out. The probe had raised questions on their decision to invest in Adani Group companies. However, a year later, a completely different story emerged. Adani Group not only got a clean chit from the Supreme Court in the Hindenburg case, but the insurance company also earned a profit of over 60% or US$3 billion on its investment in Adani Group companies.

Similarly, excessive focus on retail loans and ignoring the infrastructure sector has costed HDFC Bank and Kotak Bank shareholders heavily and they are suffering huge losses.

This is a big failure where Indian insurance companies and banks have not yet taken advantage of India's historic growth in the infrastructure sector. They have not been able to make this strategic change in capital allocation for a long time and not only shareholders but also policyholders of insurance companies are bearing the brunt of this.

Indian insurance companies have concentrated their investments in BFSI, IT and consumer sectors, all of which have been poor performers in recent times. Only 8-14% of their investments are in the infrastructure sector. This is very low when compared to global standards. Large global insurance companies such as Allianz, Nippon Life Insurance, MetLife and others such as Berkshire Hathaway have large investments in the infrastructure sector ranging from 15% to 40%.

India has had a strong government focus with large-scale spending, project support, incentivising policies and governance reforms, which has caused the infrastructure sector to face some problems that fund managers are unable to understand. Over the past few years, global insurers are increasingly looking at infrastructure investments as a 'core' investment, as the stable and long-term cash flow of infrastructure assets ensures and secures insurers' liabilities.
Adani Group is called the Infrastructure King in India with India rating of 'A+' or above.

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