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So far this quarter, insurance companies, led by Life Insurance of Corporation of India (LIC), have offloaded stake worth about Rs 17,000 crore, despite a seven per cent rise in the market during this period.
The aggressive selling comes at a time when mutual funds and foreign institutional investors (FIIs) have been heavy buyers of equities. Mutual funds bought shares worth about Rs 12,000 crore and FIIs purchased shares of about Rs 25,000 crore.
Market players believe LIC might have sold stake to make room to participate in the government’s disinvestment programme, estimated to raise about Rs 40,000 crore in FY15. Insurance companies had also sold holdings due to redemptions in unit-linked insurance plans (Ulips), said companies in this segment.
A senior LIC official said the selling was in line with a churn in the company’s portfolio, as well as its profit-booking strategy.
Nirakar Pradhan, chief investment officer, Future Generali India Life Insurance, said, “Individuals who had purchased Ulips in January 2008 might not have been able to get optimum returns. Now that returns are turning positive, people want to encash it.”
Insurers say through the past few months, renewals of such products have dropped significantly, adding customers are rushing to surrender these policies or book profits.
Experts said the heavy selling by insurance companies had largely offset the strong buying by mutual fund houses and helped keep markets in check. “Overall, domestic institutions are still sellers because domestic insurance companies are not buying. If both turn net buyers, they will have a higher impact on the market,” said Vinay Khattar, associate director and head of research, Edelweiss.
So far this year, India’s benchmark equities have rallied about 30 per cent. On a year-to-date basis, FIIs have pumped in about Rs 85,000 crore into Indian stocks, while mutual funds have been net buyers to the tune of Rs 5,700 crore. On the other hand, insurers have sold shares worth about Rs 40,000 crore.
LIC is typically considered a contra player in the market. In other words, it is on the buying side when foreign investors sell, and a seller when the market rallies or FII buying is strong.
The LIC official quoted earlier said the company booked profits of Rs 20,000-25,000 crore in the equity market every year. He added this financial year, LIC’s gross investments would stand at Rs 55,000 crore, against Rs 51,000 crore in 2013-14.
Market players believe LIC will be an aggressive buyer in the planned large-ticket disinvestment in Coal India and Oil and Natural Gas Corporation, scheduled to hit the market in coming weeks.
