)
To earn higher returns on their investment portfolios, insurers are changing their investment strategies. Now, insurance companies find longer-tenure maturity papers more attractive. Also, they are selling corporate bonds and opting for state development loans, as this avenue is more secure.
Before the Reserve Bank of India (RBI) announced liquidity-tightening measures in mid-July to arrest the rupee’s fall, the spread between the 10-year and 29-year bonds was about 30 basis points. Now, the spread has increased to 60 basis points, making longer-tenure government bonds more attractive.
Nirakar Pradhan, chief investment officer at Future Generali India Life Insurance, said, “We are taking selective positions in medium- to long-term bonds, which have attractive yields.” He added the fixed-income portfolios of companies had taken a beating; since July 15, unit-linked insurance product funds had seen a drop in net asset value.
The yield on the benchmark 10-year 7.16 per cent government bond has risen 91 basis points since July 15, while the yield on the 29-year 8.3 per cent government bond has increased 121 basis points since July 11.
“We find state development loans are more attractive than corporate bonds. Further, we are increasing the duration of our papers, since the spreads are attractive. Once the RBI measures are reversed, higher-duration investments will give higher capital gains,” said Arun Srinivasan, senior vice-president (investments) at ICICI Prudential Life Insurance.
RBI hasn’t hinted on the timing for the reversal of its liquidity-tightening moves, due to which investors like insurers are opting for safer options such as government bonds and state development loans. Though RBI announced a partial relaxation in its tight money last month, the liquidity scenario continues to be tight.
