According to Chief Investment Officer of ICICI Prudential Life Insurance, Puneet Nanda, the sell off seen in the market is more due to technical than fundamental factors. "If one looks at the fundamentals, things are only looking better and better," he says.
He informs that customers have been switching to equity and 85% of the premium is going to equity.
Excerpts from CNBC-TV18's exclusive interview with Puneet Nanda:
Have you been getting requests for that equity linkage with insurance product? Do you think that the picture will change now after the stock market correction?
ULIP forms a bulk of our portfolio. Of our total AUM of about USD 2 billion, ULIP constitutes almost 3/4th of it. Of which equity right now is about a billion dollar. In this period of market volatility, say from May 10-12 up to the end of May, we have seen fair amount of switches.
Interestingly, most of the people are switching into equity. Of the total amount, almost 80% has actually switched into the equity funds. In Unit Linked Funds, we give a lot of fund options like equity fund, balance fund, debt fund etc. So that is a very interesting phenomenon. Over and above that the entire new premium that we collected during this month, actually 85% of it went towards the equity.
Investors are using these volatile times to actually top up and increase the exposure to equities.
In terms of switches in new premium, how much would that total to in cash?
For May, we alone would have invested about Rs 350-400 crore into equity. It will be a combination of switches and new premium.
Do you think this is an industry wide phenomenon? Do you have any ballpark numbers of what the flows into ULIPs could have been, because we want to gauge how much money is coming into equities from insurance channels because of the market correction at lower levels?
Unfortunately, currently in the insurance sector, there is no mechanism for discloser of either AUM or money flowing into equities. Our AUM is about $2 billion, which is about Rs 8,800 crore. We have been leaders in the private sector market.
Of course, LIC is in a different league altogether. So there is no comparison. In the private sector market, we have been leaders. For the last five-six years, we continue to maintain that dominance.
With our AUM being around Rs 8,800 crore, the total AUM for the private sector insurance maybe somewhere in the region of $5-6 billion. Of which I would assume, at least 50% or so should be in the equity markets.
The more important factor is what you see going forward. Insurance is a business, where one would get a pretty decent kicker, if one sells regular premium kind of products, which is what we promote mostly. So what happens is that an individual who invests today will keep on investing year after year. So you will get that money.
The other thing is that it is a very high growth industry. As you grow rapidly, you will get additional flow. So while the CAGR on the total premium maybe something, the CAGR on AUM itself will be a multiple of that. For example, CAGR of our AUM since our inception has been almost 300%. I guess those are the ballpark figures.
What is the strategy that you have set out given the way the markets are at this point? Have you taken some profits off the table, or are you largely invested in?
Obviously, one needs to give returns to the customers. But even more important is the stability and safety of the money. Our sales process focuses on two things. One is the long-term savings and second is the asset allocation. Keeping that in mind, we do not take very active market calls. We do not even take cash calls.
So, our philosophy typically is to stay invested. As far as the current market is concerned, our own view right now is that the sell off is more due to technical factors than fundamentals.
In fact, if one looks at the fundamentals, things are only looking better and better. Yesterday's GDP number was pretty much like a block bluster number. So we are not concerned at all.
We think these are the great times to buy. We continue to stay invested and we will continue to do so.
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