Insurance firms stay ahead of mutual funds & FIs in equity returns in past 3 years

Rajesh Mascarenhas, ET Bureau May 15, 2012, 05.45AM IST

MUMBAI: Unit-holders of domestic insurance firms’ equity products have gained more or lost lesser than investors in mutual funds and foreign institutions in the past three years, according to an ET study.

The investment strategy of buying in a weak market and selling when stocks are rising has helped insurancefund managers perform better than other institutional investors, said money managers at insurers and mutual funds.

The value of equity investments of insurance companies rose 23.28% in 2010-11 and 7.82% in 2011-12. Mutual funds’ stock investment value grew 22.91% in 2010-11 and 0.45% in 2011-12. So far in 2012-13, insurers’ stock investment value has dropped 5.9% while that of mutual funds declined 6.4%, according to the ET study of all BSE-listed companies.

The calculation is based on the number of shares held by institutions multiplied by the value at the end of each fiscal after deducting fresh inflows in 2010-11 and 2011-12.

“We do sell whenever valuations go up. This is the prime reason why equity portfolios of insurance companies outperform the broader market,” said Abhijit Gulanikar, CIO, SBI Life Insurance.

When the Sensex rose 10.94% in 2010-11, insurance companies bought stocks worth 3,138 crore while foreign investors poured 1.14-lakh crore into the Indian market. In 2011-12, when the Sensex dipped 10.5%, insurance companies sold stocks worth 9,652 crore while foreigners bought equities to the tune of 40,000 crore. Insurers have bought shares worth 1,625 crore so far in 2012-13 against foreign institutions’ selling of nearly 2,000 crore. The Sensex has dropped 6.8% from March 31 till date.

Insurance companies are able to sell on rise and buy on declines in the stock market, because of the steady flow of premium money into their equity products.

“Unlike mutual funds or FIIs, we are getting funds on a regular basis and we are waiting for the right opportunity to enter,” said the chief investment officer of an insurance company. “The opportunity could be the situation where there are only sellers and no buyers.

On the other side, an FII or a mutual fund gets money only when there is a positive sentiment in the market,” he said. Insurers’ investments have been limited to a few sectors. While insurers invested in nearly 640 listed companies, 68% of their investments were spread across companies belonging to five sectors, including banks, oil & gas, consumer goods, software and auto.

In banks, a majority of the investments came from LIC, which helped several state-run banks meet their capital requirements. Punjab National BankAxis BankSyndicate BankUnited Bank of IndiaDevelopment Credit Bank and UCO Bank were among top picks of insurance companies.


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