MUMBAI: The foreign hand in the stock market is under threat. Foreign institutional investors (FIIs), which have long dominated the market, is facing competition from life insurers.
The 16 life insurance companies in the country have pumped in Rs 1,50,000 crore into the equity market in fiscal 2006-07. This is nearly five times more than the total FII investments, according to data released by the Life Insurance Council.
Mutual funds, which used to be the biggest domestic financial investor and used to be No 2 to the FIIs in equity investments, pumped in just Rs 8,950.04 crore.
Not surprisingly, of the total investments made by the life insurers, behemoth Life Insurance Corporation accounted for almost 75%.
As on March 31, 2007, LIC invested Rs 1,24,000 crore in the markets. Even though the assets held by MFs crossed Rs 4 lakh crore, their equity market investments were lesser because investors preferred debt funds to equity funds.
The situation is turning the other way around in the life insurance sector. Says Deepak Satwalekar, managing director and CEO, HDFC Standard Life, “We studied the investor behaviour after the markets fell in February 2007.
Nearly 90% of the people who switched from one fund to another opted for equity and reduced debt exposure. They understood that there is a buying opportunity available.”
The industry, however, is asking for some regulatory changes. Says Sushobhan Sarker, executive director, investments, LIC, “Given that we manage such a huge corpus, we should be allowed to park money in overseas markets by the Reserve Bank of India.”
As life insurance is a costly product, which has a long-term investment horizon, insurance companies are looking forward to the introduction of concepts prevalent abroad.
“Indian life insurance companies should be allowed to have multi-managers. If an investor finds that one company is not managing his funds appropriately, then he should be allowed to move to a better one. This system is prevalent in international markets,” said Gaurang Shah, managing director, Kotak Mahindra Old Mutual Life Insurance.
The increase in equity investments by insurance companies can also be attributed to unit-linked products.
The pie of equity investments by life insurance companies has been growing after their launch. Insurance companies have been launching 100% equity options for investors as well, apart from the existing offers of a combination of equity and debt.
With LIC planning to invest around Rs 117 lakh crore this fiscal (it has already invested Rs 52,000 crore) and Macquarie Research projecting the insurance industry to grow from the current 26% to 44% by 2011, more action is in the air.
So, next time you see a market fall, spare the FIIs. The villain must be in your neighbourhood.
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