Mumbai: The US subprime crisis may have led to a sharp fall on the bourses here, but it also came as an attractive buying opportunity for a number of investors waiting on the sidelines, says private insurer Kotak Life.
“We took the slide (due to the subprime crisis) as an attractive buying opportunity... a number of other insurance companies are also believed to have adopted similar strategies,” Gaurang Shah, managing director of Kotak Mahindra Old Mutual Life Insurance Ltd, told PTI in an interview.
The life insurer is one such investor that increased its exposure to the stock market after the decline in share prices starting end-July and till a couple of weeks ago.
“Insurance firms are long-term investors... They come to the market to purchase stocks and not to sell them... it is hardly a matter of concern if the share prices fall in short-term until the fundamentals remain strong,” he said.
Besides, a number of other private sector insurance companies and the state-owned market leader Life Insurance Corp of India (LIC) are also believed to have purchased stocks after the prices fell in the aftermath of the subprime crisis.
Kotak Life has invested nearly half of its asset under management, worth about Rs1,000 crore, into equities and it expects to increase its exposure to the tune of about Rs3,000 crore in a year or two, Shah said.
The company, a 76:24 joint venture between Kotak Mahindra Group and Old Mutual plc, is planning to expand its paid-up capital to over Rs 500 crore by the end of the current fiscal.
“Our paid-up capital stood at about Rs350 crore at the end of March 2006-07 and we are planning to increase it by about Rs175 crore this year,” Shah said. While close to Rs50 crore has been injected, shares worth about Rs125 crore would be issued in the remaining part of the fiscal, he added.
The company expects to break-even by 2009-10, Shah said, adding it takes quite a few years to become profitable in this industry as huge costs are involved during the initial years.
“We are aggressively looking to expand our customer base by opening branches and leveraging through the parent company and group companies’ distribution network,” he said.
The company had just 45 branches at the end of March 2005-06, which it increased to 74 as on March 2006-07, about 90 now and it plans to take it to about 150 by the year-end.
Striking a bullish tone on the potential of life insurance market, Shah said he was not worried over entry of new players and aggressive strategy of existing peers as “there was enough room for everyone in the burgeoning market”.
While discounting any threat from the growing interest in mutual funds and stocks, he said that MFs and stocks are preferred for short-term investments, while insurance is a major instrument from long-term perspective. Besides, the risk coverage was a must for every investor, he said.
Equity investment has helped insurance firms post good returns on the investors’ capital, particularly through ULIPs (unit linked insurance plans). But some industry players have advocated that insurance firms should also be asked to disclose their market activity data on a daily basis like the FIIs and mutual funds.
“I’m totally for it (sharing the daily market activity), as it would help investors understand the size and potential of the insurers,” Shah said.
Currently, when the markets fall, investors’ sentiments are hurt as they think that every one is selling, Shah said, adding retail investors sell their positions under the idea that big institutional investors were also selling.
However, when the data starts coming on daily basis, it could underline that insurers were actually buying stocks when markets were down and not vice versa, Shah said.
“Insurance firms are not sellers in the market. They stay invested for long term and daily reporting of market activities would help investors understand how we are capable of acting as a cushion against any downslide,” he noted.
However, Shah warned against the excessive dependence on equities. “Ever since ULIPs came into picture, no major and prolonged downslide has occurred in the stock market and any such event would be a testing ground for the insurance industry’s exposure to the market,” he said.