MFs, ULIPs can counter FII on D-Street
With the recent fall in Sensex, the old question of when our domestic institutions would be able to counter FIIs are cropping up again. Business Humour | Rel Power IPO
By Gaurav Pai, TNN |
MUMBAI: In the Biblical tale of the war between Israelites and Philistines, Israel had to finally rely on the valour of an unarmed shepherd boy, David, to slay the mighty Goliath, and secure its future. Financial sector experts say it would take at least two Davids working in tandem, in the form of unit-linked insurance policies (ULIPs) and mutual funds (MFs), to match the might of foreign institutional investors (FIIs) and bring balance in the Indian stock markets.
The ongoing four-year bull run has been primarily fuelled by large inflows from foreign funds, who have now invested close to $350 billion.
However, after pumping in more than $17 billion between January 2007 and October 2007, foreign funds seemed to have gone slow on their India allocations. Local investors, who were hoping that the New Year would bring in fresh investments from these funds, saw their hopes turn into disappointment, as this money never came. The Sensex has shed around 9%, or 1,800 points, this week, largely due to global factors. And with this fall, the old question of when our domestic institutions (insurance companies and MFs) would be able to counter FIIs are cropping up again.
There is also a fear that if this negative sentiment continues for a prolonged time, then Indian investors would turn their backs to these investment avenues and resume their practice of investing in bank deposits.
The ongoing four-year bull run has been primarily fuelled by large inflows from foreign funds, who have now invested close to $350 billion.
However, after pumping in more than $17 billion between January 2007 and October 2007, foreign funds seemed to have gone slow on their India allocations. Local investors, who were hoping that the New Year would bring in fresh investments from these funds, saw their hopes turn into disappointment, as this money never came. The Sensex has shed around 9%, or 1,800 points, this week, largely due to global factors. And with this fall, the old question of when our domestic institutions (insurance companies and MFs) would be able to counter FIIs are cropping up again.
There is also a fear that if this negative sentiment continues for a prolonged time, then Indian investors would turn their backs to these investment avenues and resume their practice of investing in bank deposits.
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Bajaj Capital managing director Rajiv Bajaj said the bull run has been on for a fairly long time and such short-term volatility is unlikely to affect investors. However, he conceded that if the bearish sentiment continues for a long span, then selling products to investors could be an issue.Over the past few years, Ulips, insurance products that offer investment avenues, have dominated the share of money that has flowed into the stock markets. Analysts at SSKI Securities estimate that life insurers have been pouring in a billion dollars per month in the markets, through Ulips. The corresponding number for MFs is expected to be $600 million, at best.
“We need both Ulips and MFs to become a stronger force to bring in stability to our markets,” said ICICI Prudential Life Insurance chief investment officer Puneet Nanda. “MFs with their periodic large flows and Ulips, through their small but stable flows, have different roles,” he added.
Mr Bajaj added that the percentage of financial savings of the household sector in shares and debentures has risen from 4.9% to 6.3% in 2006-07, according to RBI data. “A single percent rise in this figure would mean incremental flows of close to a billion dollars in the market,” he said. He is optimistic that when this low percentage rises to a significant number, domestic institution wo-uld be a strong counter to the ephemeral FIIs.
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