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Mumbai: State-run insurer and India’s largest institutional investor Life Insurance Corp. of India (LIC) booked profits worth at least 10,000 crore in the January-March quarter, taking advantage of a rally in stock prices, according to two senior LIC officials.

The selling by LIC accounted for a bulk of the amount sold by domestic institutional investors (DIIs) in the quarter. DIIs sold a net 14,308.11 crore of shares in the three months, a period in which foreign funds bought $4.09 billion (about 24,622 crore) of equities, according to the Securities and Exchange Board of India (Sebi).

LIC may have used the stock market rally as an opportunity to realize gains on some of its holdings, but the insurer expects to step up equity investments in the current financial year. The two senior LIC officials cited above, both of whom spoke on condition of anonymity, said the insurer plans to invest 2.3-2.4 trillion in equities and debt in 2014-15, 15-20% higher than in the last fiscal year.

Stock indices climbed to records in March on buying by foreign institutional investors (FIIs) enthused by the prospects of a pro-business, pro-market government, led by Narendra Modi of the Bharatiya Janata Party, emerging from the April-May general election. The BSE Sensex rose 5.7% in January-March and the National Stock Exchange’s Nifty rose 5.89%.

“Though we booked profits whenever the opportunity arose, we have been buying in equities too almost by a similar scale. Last year our total investment was around 2 trillion. In fiscal 2015, we expect to invest 15-20% higher," said one of the LIC officials cited above.

Between January and March, LIC sold shares in 17 of the 38 Nifty firms that have declared their March-end shareholding pattern, according to Mint research.

Companies in which LIC’s holding fell in the quarter included blue chip stocks like ICICI Bank Ltd, Oil and Natural Gas Corp. Ltd, Gail (India) Ltd, Infosys Ltd, HDFC Ltd, Wipro Ltd, Tech Mahindra Ltd, Hero MotoCorp Ltd and Tata Motors Ltd.

At Wednesday’s closing prices, LIC sold 1352.74 crore worth of shares in ICICI Bank, 831.46 crore worth of Infosys shares, and 528.88 crore worth of HDFC shares. To be sure, these numbers are indicative because LIC could have sold the shares any time in the quarter, and in several transactions.

India has 24 life insurers with total assets worth 19.4 trillion as of 31 December. Of this, LIC alone manages assets of around 16 trillion. The higher the profits booked by an insurer, the better are the prospects of returns to its customers, especially those invested in market-linked insurance products.

“LIC sells at every market high and buys at every dip and, as a large institutional investor, has the ability to enter and exit investments like no one else," said Sudip Bandyopadhyay, managing director and chief executive officer of Destimoney Securities Pvt. Ltd.

“And we should not forget that whenever FIIs sell heavily, it is LIC which supports the market by buying stocks. Often LIC has bought stocks at rock-bottom prices, when other investors were sceptical of investing in equities," Bandyopadhyay added.

LIC has been increasing its annual investment target by at least 10% every year. In fiscal 2012, the insurer invested around 1.9 trillion, while in fiscal 2013 and 2014, its total investment was around 2.1 trillion. LIC’s investment strategy depends on the growth in its business and conditions in the equity markets.

For the ongoing fiscal, the LIC officials said that while the proportion of its equity and debt investments will depend on market conditions, the insurer will remain sector-agnostic and invest based on fundamentals. The insurer is, however, concerned about the absence of good-quality debt investments.

“Of the total investment, at least 50% has to go to government securities, as per the regulations. Last fiscal, LIC invested much around 70% in debt-oriented papers. There is dearth of quality debt papers," said the first LIC official quoted above. “During the ongoing fiscal, our investment in equities will depend on markets and availability of debt papers. But all our investments are long-term in nature as insurance by nature is a long-term business."

According to the Insurance Regulatory and Development Authority (Irda), an insurer is required to channel at least 50% of its investments into government securities and at least 15% into infrastructure-oriented investment vehicles. The balance 35% can be invested in equities, non-convertible debentures, commercial paper, mutual funds and certificates of deposit combined.

Last year, Irda raised insurers’ equity investment limit to 12-15% in a single company from 10% earlier.

The regulator also relaxed the debt investment limit for insurers in a single firm. Irda excluded investments in debt sold by housing finance and infrastructure finance companies from the category of investments in financial and insurance activities. In doing so, Irda enhanced the single investee debt exposure limits in housing finance companies to 20% of equity plus free reserves from 10% earlier.

ABOUT THE AUTHOR

Anirudh Laskar

Anirudh Laskar is a senior editor at Mint, with 17 years of experience. He has reported on significant corporate matters including large mergers and acquisitions, India's emerging e-commerce sector and regulatory issues in the financial services industry. Based out of Mint’s Mumbai bureau, Anirudh has worked with Business Standard and The Telegraph before joining Mint in 2009.
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