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Business News/ Market / Mark-to-market/  Why are insurance companies selling in this market?
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Why are insurance companies selling in this market?

Insurance industry continues to remain net seller of stocks although markets have been hovering at an all-time high

Graphic: Prajakta Patil/MintPremium
Graphic: Prajakta Patil/Mint

The insurance industry continues to remain a net seller of stocks although markets have been hovering at an all-time high (see chart). Since the Securities and Exchange Board of India (Sebi) does not give data on insurance flows into the equity markets, net mutual fund inflows have been subtracted from net domestic institutional flows to get a fair idea of net insurance flows. A small portion of these flows also includes investments made by domestic financial institutions and banks.

Barring January and February, insurance companies were net sellers in the markets. “Insurance companies generally are contrarian players," says Gaurav Mehta, analyst (strategy) and vice president at Ambit Capital Pvt. Ltd. “They buy when the markets are falling and are low, and they sell when the markets are rising and at highs." Last year when the markets touched a low in August, the insurance companies stepped into the markets and bought shares at lower levels.

“The insurance companies may also be net sellers in the market because large institutions like Life Insurance Corporation of India (LIC) may be raising cash to prepare themselves for big-ticket PSU (public sector units) issues," added Mehta. The government has announced the divestment of Coal India Ltd, NHPC Ltd and Oil and Natural Gas Corp. Ltd (ONGC) to narrow its fiscal deficit. This column has written earlier that the past track record of the government’s divestment drive has been dismal and it has had to rely on state-run insurance firms such as LIC to bail it out.

Another reason why insurance companies are selling is because of redemption pressures. Investors are still surrendering their unit-linked insurance plans and are not renewing them because of the high expense ratio, said D.P. Singh, executive director at SBI Mutual Fund.

A few years ago, there was misselling of these policies, following which the insurance regulator had reduced agent commission on such products. There is more awareness now and investors are putting money in term insurance or mutual funds.

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Published: 23 Sep 2014, 08:34 PM IST
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