Insurance stocks become fund managers' favourites

ICICI Prudential Life Insurance Company, ICICI Lombard and SBI Life together have consumed over Rs 6,000 cr of mutual fund equity assets

Stocks of insurance companies are emerging as one of the favourites of domestic mutual fund (MF) managers. Until last year, the insurance sector had little or no representation in the stock market. But, a slew of big-ticket listings have caught the fancy of money managers, who are constantly on the lookout to expand their stock universe because of the gush of inflows.

This can be gauged from the fact that three insurers — ICICI Prudential Life Insurance, ICICI Lombard General Insurance and SBI Life Insurance — put together have consumed over Rs 6,000 crore of MF equity assets. Further, HDFC Standard Life Insurance, which listed last week, saw investments from ICICI Prudential AMC, Reliance Nippon MF, Sundaram MF and Axis MF, among others.

Not just initial public offerings (IPOs), but mutual funds have been seen lapping up shares of these companies from the secondary market as well. For instance, in October, equity MFs invested over Rs 1,000 crore in ICICI Lombard and SBI Life.

Mahesh Patil, co-chief investment officer (CIO) at Aditya Birla Sun Life Mutual Fund, says, “There are several sectors which were not represented in the stock market. Recent listings from such sectors open up a space for fund managers and help expanding the stock universe — providing further diversification which may also help in generating better returns.”

According to him, more companies from sectors such as insurance may come to the capital market.

Currently, ICICI Lombard General Insurance is the most-invested by fund managers as they hold over 33 million shares of the insurer worth Rs 2,242 crore as of October. 

SBI Life Insurance comes next with an investment corpus of Rs 2,147 crore for over 32 million shares.

Neelesh Surana, CIO (equity) at Mirae Asset, says, “Earlier, there were no pure-play insurance players listed on the stock exchanges. It’s a positive development and helps fund managers diversify in sectors not represented so far. Insurance is a stable business and has long-term potential as inherently it is growing and has annuity business.”

Fund managers are of the view that it is not so that the insurance business did not exist earlier. But its value was in-built in their parents and accordingly they had to take investment calls, say on companies such as ICICI Bank, HDFC and State Bank of India.

Although fund managers say most insurance companies are fairly valued but healthy long-term prospects merits investment even at current levels.

“As of now, I think they are fairly valued and there is less money available for investors on the table in the near term. But since these companies are quite robust in their growth and stable, they tend to provide stability to the portfolios,” said an equity fund manager who did not want to be named.