Insurers to channel more funds into markets this year

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The Indian stock market doesn’t have to worry about the restrained flow of foreign institutional funds. Domestic insurers, undeterred by the ongoing market volatility, are determined to pump in more money into the market. Around 40 domestic insurers, key institutional members in the Indian equity market, would scale up their gross equity exposure to around Rs 70,000 crore, up 10-15% in the current fiscal.

Life Insurance Corporation (LIC), one of the largest and most influential capital market institutions, has set aside a kitty of Rs 33,000 crore, which is 10% more than the equity investment in the last fiscal.

The remaining investment would come out of the huge funds generated from unit-linked insurnace plans (Ulips), which accounts for almost 80% of the life insurance premium garnered in the country. The domestic general insurers, including the four big state-owned general insurers, and official reinsurer GICRe will also be contributing to the institutional pool.

“We would increase our exposure in the equity markets. Despite a bit of slowdown, fundamentals of the economy have remained strong and the current corporate earnings have been good,’’ said, DK Mehrotra, managing director of LIC.

Besides, experts see equity exposure of the top five private life insurers exceeding Rs 25,000 crore in FY09.

This should cheer market participants, as on conservative estimates, insurers made net equity investments of above Rs 60,000 crore in FY08 . This makes them the largest investors in FY08, beating the FIIs, which recorded a net purchase of Rs 53,404.6 crore. Analysts point out that given the global market volatility, and the overall weak sentiment among other classes of investors, LIC and other insurers could giver support to the domestic capital markets in the current fiscal.

The largest support would emanate from LIC. With over Rs 6,50,000 crore of investible assets, LIC’s gross equity exposure has more than doubled in last couple of years due to the fast expanding Ulip portfolio. In Ulips, the investors can choose the investment pattern, and in recent times policy-holders have shown a strong preference for equity exposure. Till last week, the corporation has a mammoth Rs 90,000 crore of mark-to-market investible funds purely out of the Ulip portfolio, largely generated in the last three years.