Insurance companies could invest up to Rs 40,000 crore in the stock markets during the fourth quarter of the current financial year due to better sale of unit-linked plans (Ulips) in the recent month.
Stock market players said that apart from foreign institutional investors (FIIs), insurance companies could be the other driver for the stock markets.
“Insurance companies are one of the largest investors in the first quarter of any calendar year. And the contribution from private insurance companies has become significant now,” said Ravi Kapoor, managing director, head of South Asia, capital markets organisation Citigroup Global Markets.
The Sensex has surged 76.38 per cent or 7562.82 points since April 1, 2009. The index was at 17464.81 on December 31 as against 9901.99 on April 1, 2009. The largest private sector insurance company SBI Life aims at investing Rs 3,500 crore in the market during the fourth quarter. “Around 70 per cent of the total income that will be collected in the fourth quarter goes into equity market,” said M N Rao, managing director and CEO, SBI Life. Around 40 per cent of the total sales take place during the fourth quarter of financial year. The Life Insurance Council has projected 15 per cent growth in the new premium collection during the current financial year while the total premium income, including renewals, for the year was estimated at Rs 251,000 crore.
The downturn in the equity market during the last financial year has forced insurers to launch a slew of traditional products. Though regulations allow insurers to invest up to 35 per cent in equity from conventional plans, insurers invest only 5-10 per cent in equity. The product mix has changed for the industry from 85 per cent Ulips and 15 per cent traditional to 75:25 per cent.
“This year there has been a shift from equity products to traditional but investment in equity market has remained by and large in line with last year’s pattern. On a relative basis, policyholders are opting for balanced portfolio,” said Max New York Life Chief Investment Officer Pankaj Sharma.
“Though valuations have been little crazy, a large portion of policyholders have preferred stocks over debt,” said Future Generali Chief Investment Officer Nirakar Pradhan.