The five mega insurance IPOs which are in the pipeline for 2017 may immensely benefit from the burgeoning mutual fund inflows, as a top investment industry executive expects 5-7 per cent of the funds invested in the financial services space at present to move to the insurance sector. “Insurance is a space where we have not seen much IPOs or any form of paper come to the market. Mutual funds are actually wondering where to deploy this collection. And it will be a great fit to what they want to do,” S Ramesh told CNBC TV18 in an interview on Wednesday.
There are five insurance companies coming up with IPOs this year, namely HDFC Standard Life Insurance, New India Assurance, GIC of India, SBI Life Insurance Company and ICICI Lombard General Insurance Company. These companies are set to collectively raise up to Rs 40,000 crores before the end of 2017.
S Ramesh said that India Inc is set to raise Rs 1 lakh crore in the next 12 months. Talking specifically about mutual funds, he said, “If you look at the Mutual Fund collection, it’s nearly Rs 6,000 crores a month. Out of the Rs 1 lakh crore expected to be raised by the Indian markets, a lot of paper is by the insurance and banking and financial services (companies).”
Out of the total funds, nearly one-third is invested in the financial services space. However, with the insurance companies entering the game, the mutual funds are likely to change their asset allocation. S Ramesh pointed out, “Close to 33% of the domestic and international money is in the financial services. My judgement is 5-7% out of this will now move to the insurance sector. So, it’s exactly what the doctor ordered.”
The mutual fund industry has seen unprecedented inflows this year, as investors took to investing via SIPs. In the last financial year 2016-17, a total of Rs. 43,921 crore was collected through the SIP route.
For want of opportunities to deploy excess cash, industry players such as BlackRock Inc’s Indian unit in February shut its DSP BlackRock Micro Cap Fund to new investors. In April this year, Motilal Oswal Asset Management Co had stopped accepting new cash for its Next Trillion Dollar Opportunity Strategy, which mostly invests in small and mid-cap stocks, because it says the rally has made valuations untenable, according to a Bloomberg report.