It is now highly unlikely that two categories of large institutional investors?insurance companies and mutual funds?will rush to pick up cheaper stocks there by propping up the falling markets.
On last Friday BSE Sensex recorded the second highest fall of 1,070.63 after plunging to 8,566.82. Analysts point out that the two class of investors particularly insurers though have great deal of funds at their disposal and stock market with Indian fundamentals currently provides buying opportunity, they would be reluctant to raise their exposure at this moment due to the uncertainty both in global and India economy.
On the condition of anonymity, a senior official of Life Insurance Corporation, the largest institutional investor in the capital market said that the heavy volatility in the last few days have an impact on their investment strategies and institution would adopt a conservative way going forward.
The corporation since beginning of the fiscal has already invested around Rs 25,000 on gross basis basis including the income from the unit linked insurance plans where customers choose their investment plans.The life insurance behemoth has plans to invest over Rs 40,000 crore during the fiscal.
The country?s largest general insurance company New India Assurance with an investment portfolio of over Rs 12,000 crore has completely refrained from participating in the equity market due to ongoing volatility., confirmed a senior official of the company.
?We are not buying a single stock as there is too much of volatility,? said a NIA official.
Similarly state owned GIC Re with an equity portfolio whose market value was estimated at over Rs 20,000 crore in 2007-08 and has substantial funds to be invested is also adopting caution in its day to day investment strategies.
Also unlike last year the private sector life insurance companies have not been able to generate that much of premium sells out of the ULIPs as the customers are now shying away buying such a product in the falling markets.
The fund houses also have adopted the policy of wait and watch till the cloud over the US financial turmoil is clear.
A fund manager from a global fund house said that a clear picture will emerge by early next year as the annual company results of the developed markets will be announced.
The US crisis may have its roots beyond the ongoing banking sector?The revival of the domestic market will take place only after the uncertainty on all these things are clear which will take atleast one year?, he said.
Commenting on the market revival, Ved Prakash Chaturvedi, managing director, Tata AMC said that the US economy is flexible and it tunes itself with the changing situation.?US economy will bounce back in the next two years. As far as India is concerned, I can say that several things need to be monitored till the general elections take place in early next year,? he said.
He said,?One should invest in the domestic equity with a three year horizon?. The softening of the interest rate and the return of foreign fund is necessary. It will be a period that Indian industry will reinvent itself with the global and local needs.