Despite equity markets remaining volatile throughout the current calendar year and foreign institutional investors (FII) staying away from the markets, domestic insurance companies have provided the much needed stability in the markets.
They have bought five times more equities than that of the domestic mutual funds. This is despite the new stringent regulations coming into play for the unit linked insurance plan (Ulip) since last year.
In the current calendar year till date, flows into the Indian equity markets by domestic insurance players stood at over $ 2,719 million, more than double that of last year?s flows, when these figures touched $1,144 million. During the same period, FIIs have sold stocks worth over $ 0.76 billion in Indian markets.
An LIC official however said that slower sales of Ulip products have impacted the insurance industry. ?If you don?t have new Ulip products, money will not flow? he reasoned.
During the years 2007 and 2008, insurance had bought equities upwards of $ 7 billion each year. But in 2010, these figures fell to $1.1 billion. Since September 1, 2010, insurance regulator Insurance Regulatory and Development Authority (IRDA) brought in stringent norms which included putting caps on expenses which acted as a disincentive for distributors to sell equity linked insurance policies.
Now our dependence on traditional products is increasing, said the LIC official on condition of anonymity. ?As of now our product mix of Ulip and traditional products is 60:40 in favour of Ulips; a year back it was 75:25.
Ulips are equity linked insurance products with investments mainly done into equity markets.
On the other hand, flows into Indian equity markets by domestic mutual fund stood at over $ 425 million in the current calendar year till date, with mutual funds starting to witness flows through systematic investment plans (SIP).
Gopal Agrawal, CIO at Mirae MF says, ?In the current year we have seen some smart flows coming into equities. In the year 2009 and 2010 there were net outflows as there were huge redemptions from the investors.?
He also added that, in the coming days there might be more participation from the mutual funds in the markets as some of the fund managers are sitting on cash and might enter equity markets once valuations turns attractive.
In 2010, mutual fund had seen negative flows of $ 6,027 million from the Indian equity markets while in 2009 mutual fund had sold over $ 1,175 million in country. Since ban on entry load on August 2009, increased redemptions were seen as distributors had stopped selling due to lack of adequate compensation.