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Market watch: The new big boy

The Indian insurance companies are on their way to becoming the most substantial institutional players in our market, writes Udayan Mukherjee.

business Updated: Sep 18, 2007, 21:48 IST
Udayan Mukherjee
Udayan Mukherjee

Move over FIIs. Move over Mutual funds. The new big boy is here: It's the Indian insurance company. Surprised? Yes, Indian insurance companies are on their way to becoming the most substantial institutional players in our market.

While LIC remains the dominant player with well over $30 billion in Indian stocks, the newer private life insurance companies are fast becoming large asset managers in their own right. Prudential ICICI life has $3.5 billion invested in equities, Bajaj Allianz has $1.5 billion and HDFC Life nearly a billion. They are actually bigger than many of the "hedge" funds or "FIIs" we worship here. Insurance companies are expected to pump in over $10 billion in FY07 into the stock market, and this number is growing at a scorching pace.

Just to put these numbers in perspective, the entire mutual-fund industry has seen only $2 billion of net fund inflow this year. This despite the staggering number of NFOs, which have hit the stands. Insurance companies are getting in much more "net" money into the system than mutual funds. FIIs, of course, are a much bigger universe. Their tally is about $8.5 billion so far this year, so, assuming no hiccups, they will probably be a bit larger than insurance companies this year. Yet, for the first time we have a domestic institutional force that acts as a foil to what global guys are upto. By definition, insurance companies are more stable, longer-term players who receive a steady stream of inflows and are less susceptible to sharp outflows on short-term market gyrations. This isn't theoretical nonsense either as we saw this exact phenomenon play out in August this year when FIIs sold $2 billion of stock, all lapped up by insurance companies.

The best part about this is that the Indian public is slowly increasing its exposure to equities through the vehicle of insurance schemes. In a sense, the insurance equity money is truly "retail" in origin. The amount of household savings generated every year is so staggering that if this process were to develop further going forward, the amount of domestic money getting into equities can truly dwarf FII flows. This is not to trifle FII flows, they will and should remain a dominant force; but insurance companies, much more so than mutual funds, can actually smoothen out the volatility and edges and prove to be a big support for Indian stock prices. More power to them.

(The writer is Executive Editor, CNBC-TV 18)

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