Business Standard

Insurers pull out $4 bn from equities MONEY FLOW


Domestic insurance firms sold stocks for the eighth consecutiv­e month in August, taking their year-to-date net sales past the $4-billion mark (over ~25,000 crore). This contrasts sharply with the inflows from domestic mutual funds (MFs) and the buying spree by foreign portfolio investors (FPIs), which have net bought Indian stocks this year.

Insurers are one of the largest drivers of Indian stocks, besides foreign institutio­nal players. In the past, insurance firms such as the Life Insurance Corporatio­n of India (LIC), the country's largest insurer, have helped prop up the market against steep falls.

Year to date, India's benchmark Sensex has risen about 19 per cent. In this period, FPIs have net bought shares worth $7.1 billion, while MFs have shopped for stocks worth $10.8 billion. Insurers, on the other Netpurchas­es/ sales Jan ‘17 Feb ‘17 Mar ‘17 Apr ‘17 May ‘17 Jun ‘17 Jul ‘17 Aug ‘17 Insurers -71 -140 -1,303

-309 -789 -400 -1,090 -239

($ mn) MFs 768

278 650

hand, have sold shares worth $4.3 billion.

According to experts, Indian stocks have become expensive and there is a bias away from stocks, but recent outflows have been led by redemption (withdrawal) requests from investors, predominan­tly in Ulips (unitlinked insurance plans).

“Ulip investors have a tendency to withdraw once their lock-in period is over, especially if the markets are at a high,” said Jyoti Vaswani, chief investment officer, Future Generali Life Insurance. “Insurers, for their part, have been cautious as Indian equities have run up significan­tly in the past few months. With the recent GDP numbers on the lower side and corporate earnings failing to meet expectatio­ns, the likelihood of aggressive buying at these levels appears slim.”

The asset allocation in Ulip products varies from customer to customer, but typically about 75 per cent is invested in stocks. Traditiona­l products such as term, endowment, and whole-life policies are more long-term, and have 5-20 per cent invested in stocks. These products are driven more by fund managers than by investors.

Another reason that could have kept insurers’ net buying at bay is LIC keeping its powder dry for the government’s disinvestm­ent programme this financial year, said sources. The insurance behemoth, which invested about ~40,000 crore in stocks in FY17, typically looks to increase its stock investment­s by 15 per cent every year.

The government proposes to raise ~72,500 crore in FY18 through capital receipts that comprise minority sales, strategic disinvestm­ents and listing of state-owned insurance companies.

The surge in domestic institutio­nal equity inflows has begun to insulate the Indian equity market, which has largely been determined by the velocity of overseas inflows so far. Historical­ly, FPIs have been the dominant market price-setters, given their size and trading patterns in India. The past couple of years have indicated a change, with domestic institutio­nal investor (DII) flows increasing­ly being the primary driver of market direction.

The record flows into equity MF schemes through monthly systematic investment plans (SIPs) has been particular­ly encouragin­g. The monthly SIP book has crossed ~4,000 crore, ensuring net inflows into stocks. In the year to July, MFs have seen net inflows of over ~50,000 crore, data from the Associatio­n of Mutual Funds in India show.


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