Insurers pull $1.9 bn from stocks

Remain net sellers for six months in a row, in a sharp contrast to foreign portfolio investors, domestic mutual funds

Domestic insurance firms sold stocks for the sixth consecutive month in August, taking their year-to-date net sales towards the $2-billion mark. This contrasts sharply with the inflows from domestic mutual funds and buying spree by foreign portfolio investors (FPIs), which have net-bought Indian stocks for six straight months.

Insurers are one of the largest drivers of Indian stocks, besides foreign institutional players. In the past, insurance firms such as Life Insurance Corporation of India (LIC), the country's largest insurer, have helped prop up the market against steep falls.  "The sector has seen redemption (withdrawal) in the past few months and investors have reallocated some of their money to fixed income," said Dhananjay Sinha, head of institutional equity at Emkay Global Financial Services. "Besides, high valuations have prompted LIC to reduce its equity participation."

LIC reportedly invested Rs 60,000 crore in stocks last year and is not keen on increasing its investments this year. The insurance behemoth typically looks to increase its stock investments by 15 per cent every year.

Year to date, India's benchmark Sensex has risen 9.2 per cent, with mid-cap stock indices touching record highs. In this period, FPIs have net bought shares worth $6 billion, while mutual funds have shopped for stocks worth $1.7 billion. Insurers, on the other hand, have sold shares worth $1.9 billion.

"Valuations are expensive and there is a bias away from stocks, but recent outflows have been led by redemption (withdrawal) requests from investors, predominantly in Ulips (unit linked insurance plans). There is a minimum lock-in period for Ulip investors and, like any other stock investor, there is a tendency to book profits when the markets move up," said Aneesh Srivastava, chief investment officer, IDBI Federal 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. "With valuations being what they are, most managers have taken a call to reduce allocation to stocks," added Srivastava.  

In contrast, mutual fund investors have kept faith and continued to invest through systematic investment plans. The monthly SIP book has reached Rs 3,500 crore, ensuring net inflows into stocks.

FPIs have turned net buyers of Indian stocks after a surge in global liquidity following UK's vote to exit the European Union. "Over long term, we expect Indian stocks to deliver a compound annual growth of 14-15 per cent, which is in line with the earnings growth. Improved macros, reforms momentum, and our attractiveness compared to other emerging markets will continue to attract foreign institutional investors," said Toral Munshi, director and head of India stock research at Credit Suisse Wealth Management.