Insurers turn wary of Indian equities

Domestic insurance firms, one of the largest drivers of Indian equities, sold stocks for the sixth consecutive month in August, taking their year-to-date net sales towards the $2-billion mark. In contrast, domestic mutual funds have remained net buyers. 

In August, insurers sold stocks worth about $1 billion, while MFs purchased stocks worth $284 million. 

In general, monthly buying activity of foreign portfolio investors (FPIs) and DIIs show an opposing trend — when FPIs buy, DIIs sell and vice versa. Thus DIIs, including both mutual funds and insurance firms, act as an important counterbalance to hot money brought in by overseas inflows into the stock market.

 

 

The monthly buying and selling pattern of both MFs and insurers are mostly similar although there have been months in the past where they have taken opposing views. 

In the last six months, for instance, MFs have been net sellers of stocks for four months, whereas insurers have offloaded stocks for all of the six months. 

Year to date, India's benchmark Sensex has risen about 9 per cent, with mid-cap stock indices touching record highs. In this period, mutual funds have shopped for stocks worth $1.7 billion. Insurers, on the other hand, have sold shares worth $1.9 billion.

"The (insurance) sector has seen redemption (withdrawal) in the past few months and investors have reallocated some of their money to fixed income," said Dhananjay Sinha, head of institutional equity at Emkay Global Financial Services. "Besides, high valuations have prompted LIC (Life Insurance Corporation of India) to reduce its equity participation."

LIC reportedly invested Rs 60,000 crore in stocks last year and is not keen on increasing its investments this year. The insurance behemoth typically looks to increase its stock investments by 15 per cent every year.

In contrast, mutual fund investors have kept the faith and continued to invest through systematic investment plans. The monthly SIP book has reached Rs 3,500 crore, ensuring net inflows into stocks.

In the past, insurance firms such as LIC, the country's largest insurer, have helped prop up the market against steep falls. Just to cite one example, in May 2010, FPIs had sold equities worth Rs 4,955 crore, while mutual funds were net sellers to the tune of Rs 930 crore. In contrast, domestic insurers had purchased shares worth Rs 3,000 crore. This was in a month the benchmark Sensex was down 3.5 per cent.