The year 2013, in which Sensex gained nearly 9%, saw insurance companies increasing their selling activity to book profits. According to a Morgan Stanley report, insurance companies were net sellers at $12.1 billion in 2013, almost doubling their 2012 selling of $6.8 billion.
The latest shareholding data compiled by Capitaline show the Life Insurance Corporation of India (LIC), which is among the largest domestic institutional investors, has reduced stake in 43 of the 90 BSE 100 companies.
“The insurer has been churning its portfolio after profit-booking as markets rallied to new highs recently,” said an official on conditions of anonymity. On January 23, Sensex reached a lifetime high of 21,373.66 though it has fallen over 1,162 points or 5.43% since then.
Insurance companies started 2013 with the highest selling seen in more than five-and-a-half years, as per the Morgan Stanley report. Insurance companies sold $2.3 billion worth of equities in January 2013. In December 2013, they sold $1 billion worth of equities, continuing 16 months of selling.
Unit-linked insurance products (Ulips) were hit with redemption pressure in 2013 as sharp rupee depreciation sparked panic selling on the street. “Rupee slumped to its lowest ever close of 68.825 in August 2013, depreciating over 25% since the start of 2013. At the same time, interest rates were hovering between 10 and 11%,” said Nirakar Pradhan, chief investment officer, Future Generali India Life Insurance.
Apart from this, experts add ULIPs are losing their popularity to traditional non-unit linked products. “The shift of sales from unit-linked insurance products (ULIPs) to non-unit linked products had an impact on insurance companies’ equity participation,” said Sudhakar Shanbhag, chief investment officer, Kotak Mahindra Old Mutual Fund Life Insurance.
In 2013, foreign institutional investors (FIIs) posted their third highest net inflows into Indian equities at $20 billion. However, domestic institutional investors (DIIs) sold $12 billion worth of equities.
Market players, however, add the insurance companies could revive their buying in the current quarter. “Historically, the last quarter of a fiscal year contributes about 40% of the total year’s business. In the current quarter, insurance companies are expected to invest more in debt and equity than previous quarters,” said Shanbhag. At current valuations, Sensex is trading at 12.42-times on-year forward multiple.