Insurance companies step up stock purchases amid market swings

Domestic insurers, led by the Life Insurance Corporation of India (LIC), have stepped up their equity purchases amid relentless selling by foreign portfolio investors (FPIs).

Since November last year, domestic institutional investors (DIIs) have shopped for equities worth Rs 1.53 trillion, of which roughly a third have been bought by insurers. LIC alone accounts for about 70 per cent of the insurers’ flows, according to market watchers. This buying, combined with inflows from mutual funds (MFs), which have pumped in excess of Rs 1 trillion since November, has provided a semblance of stability to the market during periods of volatility. The indices have slid about 6.5 per cent since November.

“The life insurance industry has seen high double-digit growth with regular flows in the form of half-yearly or yearly renewal premiums, a part of which has made its way into the market,” said Mihir Vora, director and chief investment officer at Max Life Insurance.

“Tax savings considerations in the last quarter of the year have also boosted flows.”

Sales of life insurance products are typically seasonal, with about two-thirds of the business coming in the second half of a financial year. The industry is growing 17 per cent year on year in terms of individual new business annualised premium equivalent, according to estimates.

“Renewal collections are substantially better vis-à-vis last year and insurance companies are flushed with more investible funds. This has further augmented the investible surplus in recent months and significantly contributed to the investments in the equity market in the last six months,” said Rushabh Gandhi, deputy CEO, IndiaFirst Life Insurance.

LIC may have also ramped up share purchases to cushion the market against steep falls ahead of its initial public offering, said market watchers. The value of LIC’s holding in companies listed on the NSE touched an all-time high of Rs 9.53 trillion in the third quarter of FY22, accounting for nearly 30 per cent of domestic institutional assets in equities.

An email sent to LIC did not get a response.

In the past few years, private insurers have turned their focus to protection and traditional plans, which means an equity exposure of 10-20 per cent, although ULIPs (unit-linked insurance plans) remain a large part of their sales. The asset allocation in ULIP products varies from customer to customer, but typically about 75 per cent is invested in stocks. “A lot of protection-oriented products are being sold since 2020,” said Vora.

Indian equities are expected to remain volatile going ahead against the backdrop of geopolitical tensions between Russia and Ukraine, expectations of interest rate hikes by global central banks, and the surge in crude oil prices. Insurers, however, are known to be contra-players — they buy when sentiment is bearish and sell when valuations turn rich — as they typically deploy money for a longer time horizon of 10-15 years.

“DIIs have largely taken a contrarian stand to their overseas peers, which is likely to continue,” said Gandhi.

Insurance companies turned net buyers of Indian equities in 2020, after eight years of sustained selling. Since 2020, DIIs have purchased stocks worth Rs 1.5 trillion, with insurers accounting for 40-45 per cent of the purchases.

DIIs include entities such as banks and pension funds, but MFs and insurers are the chief investors in equities.