Life insurance companies are making the most of the stock market fall to buy those fundamentally strong shares whose valuations have turned attractive after the fall. Insurers across the board have been buyers and have purchased close to Rs 2,000 crore in the past few weeks since the Sensex began its descent.
The largest financial institution in India — Life Insurance Corporation — was a net purchaser. “We never try to time the market, no long-term investor tries to do this. But we do make the best of an opportunity to buy good stocks that are otherwise too expensive,” said an official. The corporation is understood to have been a net purchaser of close to Rs 1,000 crore of shares in the sharp dips the market has seen last week.
“Our experience has been that most of our investors do not exercise the option to shift to debt when the markets are down. We have, in fact, seen additional money being invested in equities whenever the sensex recorded sharp dips,” said Puneet Nanda, chief investment officer, ICICI Prudential Life Insurance. ICICI Pru, which is the second largest life insurer, has invested close to Rs 300 crore in the past three days.
Although Ulips offer investors the choice of switching their investments between equities and mutual funds, investors have chosen to stay invested in equities even when stock prices fell. “We have been through three major market crashes. In all three, our experience is that policyholders do not exercise the option to switch investment to debt. We have, in fact, seen investors using the opportunity to put more money in equity during such sharp dips,” said Mr Nanda.
“Before the fall, the market was not cheap by any measure, whether it is price to earnings, price to book value or market cap to GDP. The fall has given us an opportunity to buy,” said Shashi Krishnan, chief investment officer, Bajaj Allianz Life Insurance. He added that since Bajaj Allianz did not go for momentum stocks as a strategy, it was not affected by the fall.
The past quarter is the peak collection period for life insurance companies since more than a third of sales occur during this quarter. Life insurance companies have turned out to be big players in equities after they shifted focus to unit-linked insurance plans away from conventional endowment policies. According to Mr Nanda, since life insurers have a buy-and-hold strategy, their daily purchases never appear significant compared to other participants. But when seen over a period of time, the equity investments are significantly high.
Source: Economic Times
