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LIC’s equity holdings rise 25%, corporate debt portfolio shrinks

LIC’s equity holdings rise 25%, corporate debt portfolio shrinks
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First Published: Fri, Feb 12 2010. 09 25 PM IST
Updated: Fri, Feb 12 2010. 09 25 PM IST
Mumbai: State-owned Life Insurance Corp. of India (LIC), which profited from the purchase of corporate debt when Lehman Brothers Holdings Inc. collapsed in 2008, continues to favour Indian equities even as the market slumps.
“We see the dip as an opportunity even if it is unsettling for others,” N. Mohan Raj, executive director of investments at India’s largest fund manager, said in an interview in Mumbai, referring to the 8.8% drop in the benchmark Bombay Stock Exchange sensitive index (Sensex) since 6 January.
LIC has increased its holdings of stocks by around 25% so far in the year ending March from a year earlier, when it bought more corporate bonds than shares. It has invested at least Rs50,000 crore in shares this fiscal compared with Rs40,300 crore the previous year, as it cut corporate debt investments to Rs35,000 crore from Rs48,000 crore.
The insurer, which is fully owned by the government, has around Rs10 trillion of assets, more than double the money managed by all Indian mutual funds combined. It has been buying the nation’s equities as investors shun emerging market assets on concern that borrowers in Europe and West Asia will default on their debt.
The Sensex, which closed at 16,152 on Thursday, may climb 8% to 17,500 by 31 March as the underlying parameters of the economy are still very strong, said Mohan Raj. “Our vast domestic market means we are not too dependent on exports.”
LIC was also seeking bargains when Lehman’s bankruptcy prompted banks to curb lending worldwide because of concern about getting their money back, leading to a credit crunch and the biggest financial crisis since the 1930s. India’s overnight call money rate, or the rate at which banks lend to each other for a short term, rose to as high as 19.5% in October 2008 compared with an average of 7.75% for that year.
“It is unfair to say it was a bumper year when there was a lot of misery around,” Mohan Raj said, referring to returns from corporate debt investments in the previous fiscal.
“Company bond yields are not as appealing as they were then,” he said. The average yield of its corporate debt investments has dropped to around 9% this year after ranging between 11.5% and 14.5% last year. The Sensex gained 67% in the past year. Corporate bonds worldwide returned 16.3% last year, according to Bank of America Merrill Lynch’s Global Broad Market Corporate Index. The MSCI World Index tumbled 27%.
Asia’s third largest economy may grow 8% in the year starting 1 April, said C. Rangarajan, chairman of the Prime Minister’s economic advisory council, on Tuesday.
Gross domestic product will probably expand 7.2% in the year ending 31 March from a year earlier, the Central Statistical Organisation said on Monday.
In the coming fiscal, Mohan Raj said, bond yields may again rise to attractive levels. The benchmark 10-year bond yield may rise as high as 8.4%, the most since October 2008, from 7.86% now, due to concern over debt sales and inflation, he said.
Wholesale prices increased 8.3% in January from the previous year, according to the median estimate of economists surveyed by Bloomberg. The data will be published on 15 February. The index rose 7.3% in December. Reserve Bank of India governor D. Subbarao said on 1 February the government’s borrowing may rise in the next fiscal year from last year’s record Rs4.51 trillion.
“We feel the rate of interest will rise in the next three to six months and that will be good for us to invest in government bonds next year,” Mohan Raj said.
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First Published: Fri, Feb 12 2010. 09 25 PM IST