Who is going to be the biggest investor in the Indian Stock Markets?

We all immediately come up with the answer saying, it is FII (Foreign Institutional Investors). It is neither FII's or the Domestic Mutual Funds. The answer is: Indian Insurance companies are going to be the biggest investors in the Indian equity markets. It is hard to believe but true. Look at the facts below:

The major Indian Insurance companies like LIC, ICICI Prudential and Bajaj Allianz have sizeable investments in the Indian equity markets. Business Standard reported yesterday that LIC of India has plan to invest close to Rs100,000 crore (USD25 Billion) in 2008. ICICI Prudential manages investments close to Rs28,000 crores (USD7 Billion) and Bajaj Allianz has equity exposure close to Rs7000 crores (USD1.75 Billion). Compare this to the total FII inflows of USD18 Billion in 2007. Insurance companies get bulk of their inflows during the first 3 calendar months in India because tax payers rush to invest in tax saving insurance products. This year they expect to continue in the same way.

It is for real that domestic money is entering the Indian Equity markets in a big way. As more and more people start buying insurance products linked to equities (like ULIP's), the Insurance companies would continue to be the biggest investor in the Indian equities market. Insurance companies typically buy when there are huge falls and this has helped the Indian equity markets to recover from all the lows consistently during the last couple of years. With the Government allowing Trusts and Provident Fund to invest in equity markets, more and more domestic money is entering the Indian Equity markets.

What does it signify for ordinary investors like me?
1. Continued bull run - Till such time the Indian insurance companies are allowed to invest in equities outside India, they would be focussing only on the Indian markets which may lead to continued bull run on the bourses. Sooner than expected, Government may allow Insurance companies to invest in equities outside India to offset the bulging Foreign Exchange reserves, I guess.
2. More FII inflows - With the huge domestic money chasing stocks, more FII's would get attracted to the Indian market and it will accentuate the bull run with further inflows from outside the country.
3. Quality Mid-cap and Small-cap stocks would continue to be in demand.

I think the bull run in the Indian Equity markets would continue for few more years unless there are major issues derailing the Indian economy.