Insurers pull out $4 billion from equities in 2017

They've sold stocks eight months in a row; in contrast FPIs and domestic MFs have invested heavily

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 Rs 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 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 (unit-linked 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.
 

Illustration: Ajay Mohanty

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 Rs 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 Rs 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 Rs 4,000 crore, ensuring net inflows into stocks. In the year to July, MFs have seen net inflows of over Rs 50,000 crore, data from the Association of Mutual Funds in India show.