Domestic financial institutions led by insurance behemoth Life Insurance Corporation of India (LIC) and public sector general insurance companies are on the buying spree as the foreign institutional investors (FIIs) book profits on the Indian bourses.
According to a highly placed source, these insurance companies have bought equities worth over Rs 6,000 crore, or $1.5 billion in August alone. According to data provided by SEBI, FIIs have achieved net sales of nearly Rs 10,000 crore, at Rs 9,931 crore, between July 27 and August 20, after the US sub-prime crisis affected global markets.
In August alone, FIIs made net sales of Rs 8,500 crore. The FII selling pressure became accentuated during the past week as the stock market starting showing signs of stability. On Friday, FIIs made net sales of $802 million, equivalent to Rs 3242 crore, the biggest selling in a single trading day.
On the other hand the domestic mutual funds have made net purchases of around Rs 950 crore. LIC is the single factor that is holding the market, said a leading institutional broker.
Sources in the insurance companies, however, feel the sub-prime crisis will have little impact on the India’s growth story. “Most of the fund managers are convinced that the India’s GDP, which is more or less insulated from the sub-prime mania, will continue to grow at over 8 per cent and blue-chip companies will continue to grow at a much faster pace,” he said.
Once the global liquidity scenario improves, FIIs will start pouring funds into Indian equities and domestic funds might not get similar opportunities, said senior official of one of the leading insurance companies.
According to Nandan Chakraborty of Enam, “FII investment in India is a fraction of the pool of capital waiting superior returns. Besides, new sources of funds are emerging particularly from Asian and Middle East countries such as sovereign funds of ADIA Kuwait, GSIC, China Norway and Russia.”
“Domestic insurance companies invest close to $22 billion annually in equities and a little over $16 billion are likely to be invested by domestic mutual funds annually,” Chakraborty said.
Before they started selling in India, FIIs had invested $58 billion. Since they hold 29 per cent of Indian equities, their combined value would be around $300 billion. Foreign fund mangers feel that hedge funds, which have invested heavily in the last three years, would be not more than 20 per cent of the entire portfolio. “In the given scenario, they do not expect a huge redemption given the attractiveness of India’s growth story, said a chief investment officer of one of the leading FIIs.