Net inflows into the equity market from insurance funds will likely be more than those from foreign institutional investors, or FIIs, this year. A Motilal Oswal Securities Ltd report on third quarter earnings says that in calendar year 2010/fiscal year 2011, it expects total new allocation of around $24-27 billion in the equity markets, of which $15 billion is expected to be from insurance firms, while FIIs are expected to contribute $8-10 billion.
For the full fiscal 2010, the brokerage expects insurers to contribute around $13 billion, while FII net inflows in calendar 2009 have been around $17.5 billion. In FY12, the brokerage estimates net inflows from insurers to be around $17 billion.
This would not be the first time that insurance inflows will be propping up the market—a market analyst points out that for the year ended March, insurance firms bought more than what the FII sold. Nevertheless, the fact that it is now domestic money that will drive growth, rather than money from abroad, is very significant. Also, domestic mutual funds were net sellers during 2009 and it is likely that will change this year, although their contribution to total inflows, estimated at around $1-2 billion, is much lower than that of the FIIs or the insurance firms. Of course, FII inflows are very sizable and will continue to be significant and move our markets.
Increased savings will continue to mean larger domestic inflows into equities, while the hope is that a larger proportion of savings too will be allocated to equities. A market analyst pointed out that that is what happened to the baby boomer generation in the US, in South Korea and is now happening in China.