The equity participation of insurance companies surpassed investment by domestic mutual funds in January, for the third time in two years.
They invested $964 million (Rs 6,555 crore) in equitiescompared with $907 million (Rs 6,167 crore) by domestic mutual funds.
The combined infl ow of the domestic money offset the selling pressure by foreign portfolio investors, which sold $1.75 billion (Rs 11,954 crore) in January.
The benchmark Nifty dropped 4.5% in January. Insurance companies were net sellers of $558 million in 2015, while domestic funds were net buyers of $10.8 billion.
The general perception among market observers is that LIC becomes a big buyer when market becomes weak. This time, however, private insurance companies deployed more funds in equities.
ET has learnt that LIC deployed nearly Rs 1,000 crore in equities in January. The fall in equities market reduces the size of insurance companies' equities portfolio. This provides them room to increase their equity contribution.
Funds' equity allocation in conventional policy ranges between 15% and 20%, and in ULIPs between 30% and 60%. Funds were having higher cash holding, which was put to use partially to take advantage of lower stock valuations due to the recent fall.
Importantly, despite the uncertainty on earnings growth, insurance companies have raised their exposure in non-defensive sectors such as automobiles, banks and energy sector.