In 2019, mutual funds shopped for equities worth about Rs 53,000 crore, while domestic institutional investors (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 (SIPs), ploughing in Rs 4.1 trillion.
"Within the industry, there is increased focus on protection, which typically means less equity exposure. In our estimate, overall insurance companies have been flat to negative on equities flows in 2019," said Mihir Vora, Director & CIO, Max Life Insurance.
According to market observers, insurers are long term investors in the market and tend to get stable flows. MFs, on the other hand, are much more driven by cyclical flows, especially in times of sustained market upsurge. "With a long-term perspective and stable flows, insurers have the ability to sell at expensive valuations and wait for the right time to buy on corrections," said Aneesh Srivastava, CIO, IDBI Federal Life Insurance.
Ulip investors have a tendency to withdraw their money once their lock-in period is over, especially if the market is at a high, said experts. In 2019, India's benchmark Sensex gained 14 per cent.
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.
"Whenever the markets heat up, in ULIPs by and large, to improve the performance of the funds the fund managers may ease out their position with a hope that they might be able to rebuild it at a later stage," said Ashvin Parekh, CEO, Ashvin Parekh Advisory Services. "Insurers might have liquidated their gains from equity and may be deploying some of that money in the debt market owing to the favourable interest rate scenario and RBI's accommodative stance," he added.
The RBI slashed rates by 135 basis points in 2019, boosting debt portfolios. Bond prices and interest rates move inversely.
Insurers are one of the largest drivers of Indian stocks. 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.
According to market observers, LIC may have liquidated some of its holdings in the secondary market to participate in the government's disinvestment programme. The insurance behemoth, which reportedly invested about Rs 68,000 crore in stocks in FY19, typically looks to increase its stock investments by 10-15 per cent every year.
Historically, foreign portfolio investors 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 flows increasingly being the primary driver of market direction.