MUMBAI: Indian insurance companies may increase investments in the nation’s stocks by 24% to a record $21 billion next fiscal year as premium collections rise, according to India’s largest private insurers.
 
That’s up from an expected $17 billion invested in the year to March 31, according to the average of estimates from ICICI Prudential Insurance Co., Bajaj Allianz Life Insurance Co., SBI Life Insurance Co. and Birla Sun Life Insurance Co.
 
Record stock purchases by insurers may help absorb an estimated $20 billion of shares that are due to come onto the market from planned government sales of stakes in state- controlled companies and stock sales by non-state firms. The benchmark Sensitive Index, which rallied 81% in 2009 to be the third-best performing equity market in Asia, fell 8.9% this year.
 
“There is concern that there may be an oversupply of paper in the market,” said Abhijit Gulanikar, chief investment officer at Mumbai-based SBI Life, India’s third-biggest private insurer. “However, Indian funds, if supported with about $7 billion to $10 billion of investments from overseas investors, should be able to absorb this supply without a problem.”
 
Indian insurers, banks and mutual funds accounted for 96% of total bids from institutional investors for shares in state-owned NTPC Ltd., India’s biggest power generator. Overseas investors accounted for 4%, National Stock Exchange data show.
 
Risk averse

The sale, completed on Feb. 5, may fetch 85 billion rupees ($1.8 billion) to help the government plug the budget deficit, which is forecast to reach a 16-year high of 6.8% of gross domestic product this fiscal year.
 
The Sensex has fallen 10% from its high on Jan. 6, mirroring declines in global markets on concern economic growth is faltering.

“Investors have become risk-averse,” said Sam Mahtani, who manages $2.2 billion in emerging markets stocks as director of equities at F&C Management Ltd. in London. “Markets have been difficult over the last few days, so one can’t expect huge oversubscriptions” from investors.

Mahtani said Indian stocks could decline further on concerns about European economic growth and the strength of government balance sheets worldwide.
 
The biggest rally in Indian stocks in 18 years may falter as a record $40 billion of shares may be sold, Kotak Securities said in November. Companies plan to raise as much as $30 billion and the government may sell about $10 billion of shares in state-controlled companies, said Kotak Securities, whose estimates are among the highest from brokers.
 
Government sales
 
Share sales may rise to $20 billion by the end of 2010, Donald D’Souza, investment banking president at India Infoline said in December. About half the $20 billion in shares sales are expected to come from the government, which plans to sell stakes in 68 state-owned companies, according to the average estimate from three of the insurers.
 
The share rally last year came as Asia’s third-biggest economy weathered the global recession and purchases by global investors in 2009 matched the record $17.7 billion two years ago.
 
Prime Minister Manmohan Singh’s Congress Party has been able to accelerate economic reforms after its May election victory, with the economy set to expand as much as 7% in the year ending March, Singh predicted Jan. 8. That would be the fastest pace in two years. Asia, excluding Japan, may grow 6.6% this calendar year, the Asia Development Bank said.
 
“Investment demand will come back in a big way supported by low interest rates, low leverage and high capacity utilization,” said Sashi Krishnan, who manages $4.5 billion in Indian equities as chief investment officer at Pune, India-based Bajaj Allianz, India’s No. 2 private insurer.
 
Earnings growth
 
Earnings in the world’s fastest growing major economy after China probably grew for the first time in five quarters in the three months ended Dec. 31, BNP Paribas SA said last month.
 
Earnings at Indian companies will climb by about 18% in the year ending March 2011, predict Vikram Kotak, chief investment officer at Mumbai-based Birla Sun Life, and SBI Life’s Gulanikar. Overseas investors may invest between $18 billion and $20 billion into the nation’s stocks in 2010, Kotak predicts, topping the record inflows in 2007 and 2009.
 
“There are reasonable triggers for the domestic economy to grow,” said Bajaj Allianz’s Krishnan. “Foreign investors too remain confident of the India story.”

Birla Sun Life manages $1.7 billion in equities, SBI Life $3 billion, Bajaj Allianz $4.5 billion and Mumbai-based Prudential ICICI $6 billion.