Insurance companies turn net buyers of equities after eight years

Sustained buying by them adds heft to market rally

Insurance companies have turned net buyers of Indian equities after eight years. So far this year, domestic institutional investors (DIIs) have purchased stocks worth Rs 80,000 crore, of which mutual funds (MFs) account for Rs 33,700 crore, implying net buying by insurers.
 
Market watchers say this buying has provided heft to the market at a time when foreign portfolio investor (FPI) flows have been choppy and MF investments have moderated owing to a slowdown in investor flows into equity schemes.
 
Domestic insurers, mainly Life Insurance Corporation of India (LIC), stepped up their equity purchases during March and April, taking advantage of the attractive valuations amid the Covid-19-induced market plunge.
 
The DII pie also includes other local institutions such as pension funds, but MFs and insurance companies make the bulk of the purchases.
 
As in the past, LIC, the country’s largest life insurer, may have been instrumental in cushioning the market fall this year as well. The insurer says it has pumped in about Rs 20,000 crore this financial year, mostly in blue-chip stocks.

 
“LIC, being a long-term investor, is usually sector-agnostic and focuses on diversified investment. However, due to the current pandemic, the focus was on large caps, and the sectors badly affected were avoided,” LIC Managing Director T C Suseel Kumar had told Business Standard earlier.
 
Insurers are known to be contra-players — they buy when sentiment is bearish and sell when there is euphoria.
 

“Insurers this year have got consistent inflows in both ULIPs (unit-linked insurance plans) and traditional plans, some of which has found its way into the equity market. The lower share prices, after the correction in March, may also have dictated flows,” said Mihir Vora, director and chief investment officer at Max Life Insurance.
           
In the past few years, private insurers have turned their focus to protection and traditional plans, which means equity exposure of 10-20 per cent, though ULIPs remain a large part of their sales.
 
“Prior to the Covid-19 pandemic, the equity markets were resilient on expectations of an economic pick-up and earnings recovery. The buoyancy resulted in heightened money flows towards equity schemes of insurance companies, translating into higher investments by insurers in equities,” said Rushabh Gandhi, deputy CEO, IndiaFirst Life Insurance.
 
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.
 
While insurers are not known to be big drivers of domestic stocks unlike FPIs or MFs, they have helped prop up the market against steep falls in the past. “LIC’s investments, along with that of retail investors, have helped build positive sentiment in the market,” said Ashvin Parekh, CEO, Ashvin Parekh Advisory Services.
 
In 2019, MFs shopped for equities worth about Rs 52,000 crore, while DIIs bought shares worth Rs 42,000 crore, implying net selling by insurance companies. A similar trend has played out in the past eight years. MFs, on the other hand, have significantly ramped up their buying since 2015, driven by the surge in flows through systematic investment plans, ploughing in Rs 4.5 trillion.