The 16 life insurance companies in the country have pumped in Rs 1,50,000 crore into the equity market in fiscal 2006-07. This is nearly five times more than the total FII investments, according to data released by the Life Insurance Council.
Mutual funds, which used to be the biggest domestic financial investor and used to be No 2 to the FIIs in equity investments, pumped in just Rs 8,950.04 crore.
Not surprisingly, of the total investments made by the life insurers, behemoth Life Insurance Corporation accounted for almost 75%.
The situation is turning the other way around in the life insurance sector. Says Deepak Satwalekar, managing director and CEO, HDFC Standard Life, “We studied the investor behaviour after the markets fell in February 2007. Nearly 90% of the people who switched from one fund to another opted for equity and reduced debt exposure. They understood that there is a buying opportunity available.”
The increase in equity investments by insurance companies can also be attributed to unit-linked products.
With LIC planning to invest around Rs 117 lakh crore this fiscal (it has already invested Rs 52,000 crore) and Macquarie Research projecting the insurance industry to grow from the current 26% to 44% by 2011, more action is in the air.
So, next time you see a market fall, spare the FIIs. The villain must be in your neighbourhood.
Life can only be understood backwards—but it must be lived forwards
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Posted: 23/Sep/2007 at 2:09pm
Irrespective of whether the market is up or down, Anil Kaul has seen the number of demat accounts he oversees grow incrementally every month. Kaul is chief executive officer of ICICIdirect, the country’s largest online trading platform. Currently, he is the custodian of 13 lakh individual accounts, and says that his numbers have been growing 15% month-on-month.
Harshad Apte, vice-president at India Infoline, another broker with a wide retail reach, seconds Kaul. “Despite all this subprime effect and huge volatility in the markets, there has been no slowdown in our client additions,” he says.
Does this mean the Indian retail investor has come of age and is willing to step into the markets irrespective of the levels?
“There is a fundamental shift happening. Because of the changing demographic profile and the economy’s scorching pace, people are less risk-averse and more amenable to participating in the capital markets,” says Kaul.
In fact, numbers compiled from National Securities Depository Ltd, and Central Depository Services (India) Ltd seem to suggest that the maximum growth in new accounts this year came in August, when the markets were in the dumps. In absolute numbers, a whopping 2,07,113 accounts were added over the month, well over double the average addition of 93,000 accounts a month over the first seven months
Businessman Mohit Ved Gupta is among those who wait for a crisis to get into the markets. “All bad news is good news for me, as I treat them as opportunities to buy,”he said. He normally sits on cash, and at any major dip, parks 50% of it in stocks he likes. “Subsequently, I deploy in phases at every dip, and then wait for sentiment to turn positive and the markets to rise.” Then he sells.
While Gupta’s play is for 3-4 months, there are others like Nish*t Vadhavkar, who treat the markets as a wealth creator. “I buy into companies and not scrips, and there are companies that my family has held on to for 15-20 years,” says this fourth generation investor,“I don’t buy and sell on the basis of daily fluctuations.”
Vadhavkar, who works as an IT quality manager with a multinational company, has studied investment masters such as Warren Buffett, Ken Fisher and Peter Lynch. “My strategy is to buy into good businesses at an early stage and minimise the number of exits and entries,” he says.
Whether investor psyche is tuned the Gupta way or Vadhavkar way is difficult to tell. Either way, though, there is a steady growth in interest in the markets even when it’s down - one reason the growth in demat accounts did not dwindle when the markets were hit recently by the US subprime meltdown.
“Retail investors are much more informed these days. They know that there is no point in trying to time the markets. Many of them have also understood that to generate returns of 15-20% in the absolute long-term, they need to be in equity,” said R Kalyanaraman, senior vice-president, client sales at Sharekhan, another large retail broker, with approximately 4.5 lakh clients. He claims to have added 15,000-18,000 clients per month over the past nine months.
Kaul of ICICIdirect says account opening has also become a function of big-ticket IPOs like those of ICICI Bank and Power Grid Corporation hitting the market. “The appetite for these is tremendous and that spurs a lot of account openings,” he said.
Another reason, of course, is the growing internet penetration.
Edited by kulman - 23/Sep/2007 at 2:15pm
Life can only be understood backwards—but it must be lived forwards
The industry has grown at 25 per cent between 1999 and 2007 to stand at Rs 4,67,000 crore and the trend would improve as MFs are becoming a preferred choice for both rural and urban retail investors. This would contribute to the growth of the MF industry, the chamber said in its survey on 'MF Growth Patterns'.
The chamber said the country's MF industry is 100 times behind that of the US where the size of the industry is at staggering $12 trillion.
In India, MF industry manages nearly 700 schemes against 12,000 schemes handled by the US MF industry.
Assocham said market penetration in MF industry would more than double by 2010 from about 4 per cent now. This rate is, however, 49 per cent in the US and 20 per cent in the UK. MFs in India are now focussed on enhancing their reach to cities other than the metros, it said.
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Add to this the insurance money....the DII size is becoming larger.
Life can only be understood backwards—but it must be lived forwards
There’s no reason to deny this. But here’s why this looks like an old adage. Smitten by India’s superlative growth story, a new, brave band of investors is daring to defy the set norms and willing to take more risks not just for a secure future, but to get more bang for their bucks — right here, right now.
Of course, you could shrug this off as a classic case of making hay till the sun shines. Or as a natural offshoot of the cyclical process of boom or bust. Whichever way you look at them — through history or across geographies — a change always brings along with it new behavioral patterns, often with newer dimensions.
India’s financial market is a case in point. Thanks to a booming economy, high personal incomes and rise in awareness levels, more young and enterprising investors are taking the virtual ‘bulls and bears’ by the horns and riding the crests and troughs of the market with expertise . This is in sharp contrast to the scene just a couple of years ago when the young entrants played it safe and looked only to the primary market for a secure investment.
Stats say it all. According to the latest RBI annual report, direct investments by households in shares has increased by 37%, from Rs 8,034 crore in 2005-06 to Rs 10,953 crore in 2006-07 . Same is the story with investment by households in mutual funds (MFs). The investments in MFs saw a whopping growth of 74%, from Rs 21,139 crore in 2005-06 to Rs 36,700 crore in 2006-07 . Interestingly, bank deposits, which attract an interest rate of around 9% now, surged by 34%, from Rs 2,74,747 crore in 2005-06 to Rs 4,22,114 crore in 2006-07 .
So what’s behind the new pattern of investment, you’d sure be curious. Explains Vikas Vasal, executive director, KPMG India: “Today, making an investment either through an MF or in direct equities is no difficult than signing in on at a social networking webpage. It is as simple as a friend sending you a link on your e-mail. At the macro level, it is India’s LPG (liberalisation, privatisation and globalisation) policy of the early ’90s which has paved the way for this change.”
Convenience apart, this also speaks for the decline in investment of Indian households in small saving schemes such as PPF and Postal Saving Schemes, National Saving Schemes, monthly income schemes, National Saving Certificates , and Indira Vikas Patras.
DESTINATION INDIA
The fundamentals have never been so good.
Foreign institutional investors (FIIs) too have invested a record $4.15 billion in Indian stocks since September 18 this year when the US Fed cut interest rates to tackle the US economic slowdown and subprime crisis.
Experts are already noting the change in investment behaviour. Tarashankar Bhattacharya, managing director of the State Bank of India, feels that India’s growth story and new financial products will script the future. “With the rise in number of HNIs and availability of information about other markets, there will be more people going global,” he says.
“A young person always has the appetite for taking larger financial risk. The earning levels have also gone up substantially. This has resulted in availability of surplus funds. Further, the young population wants to enjoy life,” says Kaushik Mukerjee, executive director, PricewaterhouseCoopers. He believes that economic growth is the push factor and improved financial products constitute the pull factor — which are inherently spawning these changes.
REALITY CHECK
Although the domestic MF industry is expected to grow at a CAGR of 30% in the next three years and the market penetration is set to double, Indians are still far behind when compared to other countries, according to the Assocham report. In India, the MF industry manages nearly 700 schemes, while the US MF industry has more than 12,000 schemes.
A survey by IIMS Dataworks shows that only 3.5 million Indians, out of a total working population of 321 million , are in the 18-59 age group who invest in stocks.That’s just over 2% of the total working population. While in developed countries such as the US, half the households invest in mutual funds. Experts say that the poor numbers can be associated with the fact that the capital market wasn’t vibrant enough a decade back, as it is today.
That’s why new Indian investors are investing in mutual funds and ULIP insurance schemes because they know they can get far better returns than investing in government-sponsored schemes. Savings in tax is an additional bonus. Getting back to where we started, the robust economy will attract more global financial products and the markets may witness boom or bust in the time to come. That’s inevitable, you’d sure agree.
But this will also change the profile of the investor and throw up a new set of brave players who will change the behavioural patterns and script newer rules and practices where risk-taking and enterprise will be a given. After all, if the Indian story is getting bigger, can Indians stay far behind? Think about it.
Life can only be understood backwards—but it must be lived forwards
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Posted: 26/Oct/2007 at 9:54pm
Life insurers expected to pour US$50b into Indian equities
FOREIGN institutional investors are not the only ones pouring money into Indian stocks. According to a Citigroup report, life insurance firms are equally upbeat about the markets and should invest more than US$50 billion in equities in the fiscal year 2012. The amount is almost 10 times last year's levels.
In the current 2007-8 fiscal year, Citigroup estimates a total insurance stock portfolio of about US$15 billion, up from US$5 billion in 2005-6. Such investment was insignificant until financial year 2004. 'Our sense is that the private sector insurance companies have very effectively captured the 'under-invested' equity space and long- term savings market ... effectively, insurance has of late become the biggest conduit for households to direct their savings into equity,' Citigroup said.
The insurance companies have also been lucky, with their timing with the popular ULIPs (unit-linked plans) earning returns of more than 40 per cent a year over the past five years, said Citigroup.
The returns earned by the insurance firms are higher than profits by mutual funds and direct equity investors, as longer-term focus of insurance products leads to better planning and product mix.
Citigroup's findings substantiate another recent report by global consultancy McKinsey & Co. 'With household incomes rising, the life insurance premium income market could double from the present US$40 billion to US$80 billion or even US$100 billion by 2012,' McKinsey said.
Insurance is sought in the absence of social security in India and tax benefits due to such products. Indians rank life insurance higher than any other investment.
New premiums have been growing at 100 per cent in the recent past, although the expectation is that this growth will taper off to under 50 per cent in the next few years.
The share of equity savings of households has risen from less than 2 per cent in 2004 to more than 6 per cent in two years.
4000 crs pension fund money will be invested in debt and equity markets from Q1 FY08. Even if we assume 20%, 800 crs will act as a support in case FII inflow slow down (which i dont see happening!).
UTI AMC, SBI and LIC will manage these money. Looking forward to UTI AMC IPO !!
"You don't need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beat the guy with a 130 IQ. Rationality is essential"- Warren Buffett
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Posted: 12/Nov/2007 at 10:10am
Originally posted by deveshkayal
UTI AMC, SBI and LIC will manage these money. Looking forward to UTI AMC IPO !!
R-Cap could see some demand then.
'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
The recent boom in the stock markets seems to be attracting more retail investors to the bourses, if the number of new ‘demat’ accounts being opened, is any indication.
According to the latest ‘demat’ accounts data released by Central Depository Services Ltd (CDSL), one of the two depositories, shows that more than four lakh new accounts have been opened in the last two-and-a-half months — a 50 per cent increase in monthly average compared to that of the first eight months of the current year.
The number of demat accounts with CDSL has almost doubled to 28.24 lakh as on November 15, 2007, from 15.55 lakh as on January 1, 2007, according to a release from the depository here on Saturday.
The total number of demat account with NSDL as on November 10, stands at 8.2 million. (HBL)
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So, in all there are 1.10crs demat accounts...compare this to population
"You don't need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beat the guy with a 130 IQ. Rationality is essential"- Warren Buffett
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