Mumbai: The biggest and most powerful investor on Dalal Street isn’t a foreign institutional investor (FII), but state-owned insurance company Life Insurance Corp. of India Ltd (LIC), the market value of whose investments may have already crossed the $50 billion (Rs1.97 trillion) mark.
LIC’s equity portfolio comprises 221 firms that are part of the BSE-500, an index of the top 500 firms traded on the Bombay Stock Exchange (BSE) by market capitalization, and was worth $49.5 billion at Friday’s closing prices on the exchange. BSE’s benchmark index, the Sensex, has since gained 1.63%—it closed at a lifetime high of 20,290.89 points on Tuesday—which means that the value of LIC’s holdings may have increased even more.
The value of LIC’s current portfolio equals the combined value of the India portfolio of seven of the top 10 FIIs in terms of investments in the country. Citigroup, Deutsche Group, Morgan Stanley & Co. International, Merrill Lynch Capital Markets, CLSA Asia-Pacific, Goldman Sachs Investments Mauritius and JPMorgan Chase together own $49 billion worth of Indian stocks.
Analysts say this is symbolic of the growing strength of domestic investors. These investors were responsible for the Sensex bouncing back after it dipped to 17,171.45 points on 22 October following an announcement by capital market regulator Sebi on curbs on participatory notes (PNs), a preferred vehicle through which some FIIs invest in India. Even as FIIs sold equities worth $1.9 billion (net of their fresh purchases) between then and end of November, the Sensex rose to 19,363.19 points.
A senior executive at LIC’s investments division, however, downplays the firm’s power to move and shake the markets. “Unlike many other investor groups, we do not take short- term profits. We invest insurance funds, with a long-term view. Therefore, we buy stocks in large quantities, but do not sell them that often,” said the executive, who did not wish to be identified as he is not authorized to speak to the media.
LIC is currently the largest institutional investor in the Indian equity market. Apart from LIC, the big domestic players include top three mutual fund houses—Reliance Mutual Fund Ltd, Prudential ICICI Asset Management Co. Ltd and UTI AMC Ltd. However, the assets under management of these funds also include their investments in bonds and other debt instruments.
To be sure, LIC’s emergence as the biggest investor in the country should not surprise anyone. The state-owned company is 51 years old and enjoyed a state-sanctioned monopoly over the life insurance business till 2000. The firm has issued 220 million policies and earned total premium income of Rs39,541 crore in 2006-07. It is allowed to invest 35% of its funds in equities.
Mint calculated the value of portfolios owned by the top 10 FIIs and domestic investors, based on the value of their holdings in excess of 1% in listed Indian firms for the quarter ended September. The value of LIC’s portfolio (and this excludes the assets of LIC Mutual Fund or LICMF) has grown more than 100% in the past four quarters to $49.5 billion. LICMF, LIC’s fully owned subsidiary, manages its assets raised from institutional and retail investors separately.
The value of stocks owned by Citigroup and Deutsche Group—the largest FIIs in Indian markets—is more than $13 billion each. However, not all these investments are direct in nature. “A large part of this portfolio is participatory notes held on behalf of our clients,” said Ravi Kapoor, managing director and head of equity capital markets at Citigroup Global Markets India Pvt. Ltd. PNs are offshore derivatives of Indian stocks sold by registered FIIs in India to their foreign clients.
FIIs bought Indian stocks worth a record $16.7 billion this year. The Sensex has gained more than 40% since the beginning of this year. The value of LIC’s portfolio was about $22 billion at the end of September 2006.
But for the conservative policy of Irda (Insurance Regulatory and Development Authority, the insurance sector’s regulator), insurance firms would have invested more in equities, said Anita Gandhi, head of institutional business at Arihant Capital Markets Ltd. “The regulator does not permit the insurance companies to participate in the futures and options (F&O) segment. As a result, these companies cannot hedge their positions unlike the FIIs. If they could trade in F&Os, the returns could have been far higher,” she said.
The largest chunk in LIC’s portfolio is the stake it owns in listed engineering giant Larsen and Toubro Ltd. The 15.7% stake in L&T is valued at more than Rs19,642 crore. Other major investments include a 4.14% stake in Reliance Industries Ltd, the largest Indian company by market capitalization, 7.2 % in ICICI Bank Ltd, 13.4% in ITC Ltd and 4.2 % in Reliance Communications Ltd.
Ashwin Ramarathinam contributed to this story.