Indian life insurance companies are rapidly catching up with the money power of foreign institutional investors.

In this financial year so far, insurance companies have invested around Rs 36,000 crore in the stock markets against around Rs 60,000 crore invested by the FIIs.

But the gap is expected to narrow in the last quarter (January to March 2008), with the insurance companies estimated to pump in an additional Rs 24,000 crore.

While no estimates are available on projected FII investments, the last quarter is usually a slow one for FIIs. For example, FIIs invested a mere Rs 6,000 crore in January to March 2007.

There are over 1,000 FIIs registered with the Securities and Exchange Board of India compared to just 16 life insurers (including government-owned Life Insurance Corporation.

"Retail investors are best represented in the stock markets by life insurers, and not mutual funds," said Puneet Nanda, executive vice-president & chief investment officer of ICICI-Prudential, the biggest life insurer after LIC [Get Quote].

A senior executive in LIC said the corporation is looking at an investment of Rs 15,000 crore in the January-March quarter, the biggest quarter for life insurers, in terms of funds flow.

"We were investing 10 per cent of our funds in the markets. We are extremely happy with the returns from the market and have decided to invest 15 per cent of the funds in stocks," said the LIC official.

LIC's total investment in the market till date is valued at well over Rs 100,000 crore.

"There is a strong flow from insurance companies into the market. The insurance companies, due to their long-term nature of investments, offer more stability and better returns for investors," said the LIC official.

ICICI-Prudential Life's assets under management doubled from Rs 15,800 crore to Rs 28,000 crore from March 31, 2006 till date (nearly 80 per cent is in equities). The firm expects the flow to be much higher in the last quarter.

Bajaj Allianz Life, the third biggest life insurance player, has an investment of over Rs 6,000 crore in the market (as on March 31, 2007).

"More often than not, the insurance companies are big buyers when the market falls, as they find big opportunities during corrections," said Nanda.

In the aftermath of Participatory Notes curbs, which triggered big selling by FIIs (about $1.5 billion in October-December period), domestic institutions (mostly insurance companies) bought nearly $1 billion worth equities, according to data on the Bombay Stock Exchange. This reduces mutual funds as a small player in the larger scheme of things.

Though the total mutual funds assets are over Rs 5.5 lakh crore, an overwhelming portion is invested in debt schemes. Besides, retail investments in mutual funds are much smaller.