MUMBAI: Even as the market appears to be gearing up for an onslaught of public issues — including a sizeable chunk by state-owned companies — most
market observers are of the view that there will be sufficient liquidity in the system to absorb the additional paper.
According to strategists and fund managers, equity markets are likely to see close to $15 billion of gross inflows from the insurance sector alone. “This goes a long way towards assuaging concerns that the market may come off if there are not enough takers for all that paper,” a senior insurance official told ET.
LIC is looking to invest around Rs 12,000 crore in equities between now and March end. “This year we have so far deployed Rs 38,000 crore and will deploy another Rs 12,000 crore by March 31, 2010,” said a senior government official on condition of anonymity , adding that the insurance major had deployed Rs 40,000 crore into shares in 2008-09 .
People familiar with the development said that LIC is likely to be a significant subscriber to all the three PSU offerings in the near term. “The inflow has been good. The institution has reiterated its standing as a market leader in life insurance products so it is but a natural progression,” said an industry official.
The $15-billion insurance money along with FII inflows is expected to maintain the bullish trend in the market. FIIs net bought shares worth $17.46 billion in calendar year 2009. “We estimate around $13-15 billion money coming in via the insurance sector for FY10. The market will not only have to absorb around $3-5 billion worth of follow-on public offerings from three large PSUs, but there is also a lot of supply come in from power sectors and real estate companies,” said a senior official from a private life insurance company.
Current estimates point out to around $9-11 billion of fresh issuances in the pipeline for this calendar. However, back-of-the-envelope calculations point to an additional $4- $5 billion in the pipeline. “If the government decides to play an aggressive role and take the divestment story further, there is no telling as to the size and scale of issues that could hit the market. This could probably skew all estimates,” said Jagannathan Thunuguntla, equity head, SMC Capitals.
Insurance officials feel that while there has been no significant shift in the new business premium, the growth in the renewal premiums is important.
People familiar with the issue said that the annualised premium equivalent (APE), as on December 2009, is around Rs 30,000 crore of which LIC’s share is Rs 14,000 crore. According to insurance industry data, renewal premium for the quarter ended September 2009, stood at Rs 62,991 crore, compared to Rs 52.045 crore for the same period the previous year.
Gaurang Shah, MD, Kotak Mahindra Life Insurance , says that percentage renewal increase in Ulips will definitely flow into the equity market. ”There is no change in the pattern. The renewal premium on Ulips has seen a build up. To that extent the market should get more allocations into equity,” he told ET.
Reiterating this is Sashi Krishnan, CIO, Bajaj Allianz Life Insurance who says that one could see inflows of around $13 billion- $15 billion for this fiscal and the next. However, strategists caution that local money flows take cues from FII flows. “If (FII) flows take a hit on account of some external shock, domestic institutions could also turn bearish,” he added.
