Insurance companies may increase investments in the nation’s stocks by 24 per cent to a record $21 billion next financial year as premium collections rise, according to India’s largest private insurers.
That’s up from an expected $17 billion (Rs 78,200 crore) invested in the year to March 31, according to the average of estimates from ICICI Prudential Insurance Co, Bajaj Allianz Life Insurance Co, SBI Life Insurance Co and Birla Sun Life Insurance Co.
Record stock purchases by insurers may help absorb an estimated $20 billion (Rs 92,000 crore) of shares that are due to come onto the market from planned government sales of stakes in state-controlled companies and stock sales by non-state firms. The benchmark Sensitive Index, or Sensex which rallied 81 per cent in 2009 to be the third-best performing equity market in Asia, fell 8.9 per cent this year.
“There is concern that there may be an oversupply of paper in the market,” said Abhijit Gulanikar, chief investment officer at Mumbai-based SBI Life, India’s third-biggest private insurer. “However, Indian funds, if supported with about $7 billion (Rs 32,200 crore) to $10 billion (Rs 46,000 crore) of investments from overseas investors, should be able to absorb this supply without a problem.”
Insurers, banks and mutual funds accounted for 96 per cent of total bids from institutional investors for shares in state-owned NTPC Ltd, country’s biggest power generator. Overseas investors accounted for 4 per cent, National Stock Exchange data show.
‘Risk-averse’
The sale, completed on February 5, may fetch Rs 8,500 ($1.8 billion) to help the government plug the budget deficit, which is forecast to reach a 16-year high of 6.8 per cent of gross domestic product this financial year.
The Sensex has fallen 10 per cent from its high on January 6, mirroring declines in global markets on concern economic growth is faltering.
“Investors have become risk-averse,” said Sam Mahtani, who manages $2.2 billion in emerging markets stocks as director of equities at F&C Management Ltd in London. “Markets have been difficult over the last few days, so one can’t expect huge oversubscriptions” from investors. Mahtani said Indian stocks could decline further on concerns about European economic growth and the strength of government balance sheets worldwide.
The biggest rally in Indian stocks in 18 years may falter as a record $40 billion (Rs 1.84 lakh crore) of shares may be sold, Kotak Securities said in November. Companies plan to raise as much as $30 billion (Rs 1.38 lakh crore) and the government may sell about $10 billion (Rs 46,000 crore) of shares in state-controlled companies, said Kotak Securities, whose estimates are among the highest from brokers.
Government sales
Share sales may rise to $20 billion (Rs 92,000 crore) by the end of 2010, Donald D’Souza, investment banking president at India Infoline said in December. About half the $20 billion (Rs 92,000 crore) in shares sales are expected to come from the government, which plans to sell stakes in 68 state-owned companies, according to the average estimate from three of the insurers.
The share rally last year came as Asia’s third-biggest economy weathered the global recession and purchases by global investors in 2009 matched the record $17.7 billion (Rs 81,420 crore) two years ago.
Prime Minister Manmohan Singh’s Congress Party has been able to accelerate economic reforms after its May election victory, with the economy set to expand as much as 7 per cent in the year ending March, Singh predicted January 8. That would be the fastest pace in two years. Asia, excluding Japan, may grow 6.6 per cent this calendar year, the Asia Development Bank said.
“Investment demand will come back in a big way supported by low interest rates, low leverage and high capacity utilisation,” said Sashi Krishnan, who manages $4.5 billion (Rs 20,700 crore) in Indian equities as chief investment officer at Pune, India-based Bajaj Allianz, India’s No. 2 private insurer.
Earnings growth
Earnings in the world’s fastest growing major economy after China probably grew for the first time in five quarters in the three months ended December 31, BNP Paribas SA said last month.
Earnings at Indian companies will climb by about 18 per cent in the year ending March 2011, predict Vikram Kotak, chief investment officer at Mumbai-based Birla Sun Life, and SBI Life’s Gulanikar. Overseas investors may invest between $18 billion (Rs 82,800 crore) and $20 billion (Rs 92,000 crore) into the nation’s stocks in 2010, Kotak predicts, topping the record inflows in 2007 and 2009.
“There are reasonable triggers for the domestic economy to grow,” said Bajaj Allianz’s Krishnan. “Foreign investors too remain confident of the India story.” Birla Sun Life manages $1.7 billion (Rs 7,820 crore) in equities, SBI Life $3 billion (Rs 13,800 crore) , Bajaj Allianz $4.5 billion (Rs 20,700 crore) and Mumbai-based Prudential ICICI $6 billion (Rs 27,600 crore).
