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Saturday, April 11, 2009

Domestic insurance cos pump Rs 53,000 cr in equity markets

Business Line

Mumbai, April 10 Domestic insurance companies’ investments in equities rose sharply during the fiscal ended March 2009; their net purchase of equity rose 70 per cent during this period.

They were net buyers of equity for Rs 53,000 crore in the fiscal year ended March 31, 2009; against Rs 31,000 crore in the previous fiscal, data collated from the SEBI and BSE Web sites indicated.

Their contribution as a proportion of the net equity investments by domestic institutions also rose — they accounted for 88 per cent of domestic institutional net buying in the fiscal currently ended, against 65 per cent in the previous fiscal.

Mutual funds were also net buyers in fiscal 2009 — for Rs 7,000 crore, while FIIs were net sellers for Rs 49,000 crore.

The country’s largest life insurer, Life Insurance Corporation, alone has invested close to Rs 40,000 crore in the equities market in 2008-09, Mr Thomas Mathew, LIC’s Managing Director in charge of investments had said recently.

The buying has been despite the fact that the accretion of premiums has been slower for the life insurance industry in 2008-09 and that mutual funds have been faced with large-scale redemptions, Mr U.S. Roy, Managing Director and CEO, SBI Life Insurance, said.
Stabilising factor

Domestic institutional investors have been the stabilising factor in the domestic equities market at a time when the foreign institutional investors were pulling out, said Mr Roy.

SBI Life Insurance has invested around Rs 3,000 crore in equities in 2008-09, against Rs 2,000 crore in 2007-08, Mr Roy said.

Mr Puneet Nanda, Chief Investment Officer at ICICI Prudential Life Insurance, said he could not disclose investment figures for the year currently ended. However, in fiscal 2007-08, the company’s assets under management were around Rs 28,000 crore, of which 60 per cent was invested in the equity markets (around Rs 16,800 crore), Mr Nanda said.

Insurance companies are the saving grace for the markets and they will continue to invest as their corpuses are growing, said the head of research of a Mumbai-based broking firm.

The insurance industry has more predictable cash flows than the mutual funds industry, allowing them to be larger investors in the equity markets, said Mr Kenneth Andrade, Vice-President, Equity, IDFC Mutual Fund.

Mutual funds are largely dependent on the inflows which in the past couple of months have been slow, remarked Mr Saurabh Mukherjea, Head of Indian Equities at Noble Group. In an economic downturn, when job insecurity rises, sales of conventional investment instruments such as insurance products have not been affected as much as the mutual funds, said Mr Mukherjea.
Cheaper valuations

Insurance companies, in fact, would be buying stocks at cheaper valuations at this point of time as their investments are more long-term in nature, said a broker.

Since only 5-6 per cent of the premiums collected by way of sale of traditional policies are invested in stocks, it is the sale of unit linked products (ULIPs) which will determine our investment in equity in the coming months, said Mr Roy.



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