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Due to large scale surrenders in Unit Linked Insurance Plans (ULIPs), State-run insurance behemoth Life Insurance Corporation and other insurance companies have turned heavy sellers of equity in the third quarter of FY13.
DIIs sell Rs 18,724 cr
According to SEBI data, domestic institutional investors, including insurance companies and mutual funds have sold equities in the net worth Rs 18,724 crore in the December quarter of FY13.
“More than 70 per cent of the selling from domestic institutional investors have been from insurance companies. All life insurers are forced to sell shares everyday due to redemption requests from investors,” said Sampath Reddy, Chief Investment Officer at Bajaj Allianz Life. Interestingly, during the same period, foreign institutional investors (FIIs) lapped up equities, in the net, worth Rs 46,029 crore.
Inflows into G-Secs
Life insurance firms have seen investors, who bought ULIPs in 2007 and 2008 with a three to four year lock-in period, surrendering policies.
In 2010, the insurance regulator revamped ULIP norms by increasing the lock-in period and lowering commissions on their sale. This led to a massive dip in ULIP sales. As of March 2012, life insurers manage assets of around Rs 28-lakh crore.
“We are seeing fresh inflows into traditional products than unit linked products. Investors are redeeming ULIPs as their lock-in period is coming to an end and moving into traditional products,” said Aneesh Srivastava, Chief Investment Officer, IDBI Federal Life insurance.
Adds Reddy: “There has been a sea change in the insurers’ business in the last three years. ULIPs which constituted 90 per cent of our business have come down to 5-10 per cent now in favour of traditional products, where the investments have to be made in fixed income securities such as government securities and bonds.”
This year in January alone, domestic institutional investors have redeemed shares in the net worth Rs 17,542 crore, while foreign institutional investors have been net buyers at Rs 22,059 crore.
Insurers witness almost one third of their sales during the between January and March for tax saving purposes. This has resulted in high redemptions in January, said experts in the insurance industry.
Post September, the Government announced several big-ticket policy measures which renewed FII confidence and who in turn pumped in large sums of money into the equity market. During the calendar year 2012, Indian markets were up by about 25 per cent led by heavy buying.
“It is an investor psychology, as markets rise investors in equity schemes rush to sell their shares and book profits,” said Srivastava.
To meet the Government’s disinvestment target, LIC has reportedly sold shares worth an estimated Rs 8,000 crore by lowering holdings in more than half of the blue-chip firms of Nifty-50.
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