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Photo: Priyanka Parashar/Mint
Photo: Priyanka Parashar/Mint

LIC may invest Rs2.7 trillion in capital markets this fiscal year

Of this, about Rs68,000 crore is likely to be invested in the equity markets in keeping with LIC's investment pattern

Mumbai: State-run Life Insurance Corporation of India (LIC), the country’s largest life insurer, is likely to invest close to 2.7 trillion in the capital markets during the year to March 2017, said two people familiar with the plans.

Of this, about 68,000 crore is likely to be invested in the equity markets in keeping with the insurer’s investment pattern under which it allocates 25-30% of its investible surplus to equity, they said.

According to a 9 March Mint report, prolonged market lows allowed LIC to invest at least 60,000 crore on a gross basis during the past financial year that ended on 31 March. This was one of the highest investments by LIC in equities in the past 10 years.

In the same financial year, foreign portfolio investors pulled out 14,172 crore on a net basis from Indian equities. Domestic institutional investors purchased shares worth a record 80,433.3 crore in the cash (equity) segment in the year, according to the Securities and Exchange Board of India.

The volatility on display in the markets could actually work to LIC’s advantage, one of the two persons added.

“Markets have been choppy and may remain so for some more time going forward."

“LIC is capable of taking contrarian calls unlike other players. It can invest in a falling market and divest in rising market, which others would typically not be able to do. And, it is critical to remember that all investments of LIC in equity are typically long-term in nature," the first person said.

However, the fact that the market didn’t gain much in the past year led to lower profit-booking of around 10,000 crore on equities as compared with previous years, said the second person, who also asked not to be identified.

An LIC spokesperson said that investment figures can be communicated only after the statutory audit for financial year 2015-16.

According to Mint research, LIC held stakes in at least 260 listed companies at the end of December (latest available data). Between April and December, LIC sold the most number of shares of Oil and Natural Gas Corp. Ltd and bought the most number of shares of Infosys Ltd in terms of the absolute value of transactions. LIC sold 561.59 million ONGC shares between April and December, while the insurer bought 73.23 million Infosys shares in the first nine months of the financial year.

The insurance giant has also been an active investor in banking shares and invested close to 5,000 crore in bank equity during this year, said the first person quoted above. Most of these investment were done through preferential allotments.

A chunk of this borrowing happened in the January-March quarter, when public sector banks were scrambling to raise capital. In this period, LIC invested 2,000 crore in banking stocks. This pushed up LIC’s holdings in a number of public sector banks to close to the maximum permitted limit of 15% of the paid-up capital in a single listed company.

For instance, the insurer bought shares of IDBI Bank Ltd worth at least 848.42 crore on 28 March, pushing LIC’s shareholding in the bank to above 14%.

The insurer also bought Vijaya Bank shares worth at least 225.83 crore through a preferential allotment on 30 March. On 29 February, Syndicate Bank sold 216.93 crore in shares to LIC in another preferential allotment. LIC also bought shares of Oriental Bank of Commerce, Central Bank of India, Andhra Bank and Dena Bank through preferential allotments during the January-March quarter.

LIC increased its shareholding in at least 11 state-owned banks in 2015-16.

“Many banking stocks were available at very reasonable prices after their stocks corrected. Also, most investments in the equities of these banks were done through the primary market, which saves impact costs, brokerages and other charges. It made a lot of sense for LIC to buy into such private placements," said the first person. LIC may continue to buy into bank stocks which are available at attractive valuations, this person added.

“The problem of stressed assets with banks has hit the market sentiment for such stocks. But LIC believes this is a temporary phenomenon. So LIC feels that during this new financial year, there will be ample opportunities to buy banking stocks," said the second person.

LIC has not just been a buyer of bank stocks but also of bonds issued by these lenders to maintain adequate capital.

In 2015-16, state-owned banks launched 26 bond issues, raising 29,165 crore at coupon rates ranging from 8.33% to 11.95%. LIC bought at least 8,000 crore worth of these bonds, according to the first person quoted above.

“During the financial year, LIC bought tier-II bonds issued by banks and that also after carefully factoring in their ratings and other investment parameters that LIC follows internally," said the second person.

According to insurance regulatory norms, every insurer is required to invest at least 50% investable surplus in government securities and the balance in other approved instruments. An insurer can invest up to 35% in equity and 15% in commercial papers, certificate of deposits and other money market instruments.

LIC, with at least 250 million policyholders, around 300 million policies and total assets worth at least 20 trillion, is the largest among 24 life insurers in the country.

According to LIC’s disclosures at the end of December, the state-owned insurer’s net premium collections stood at 1.73 trillion or the first nine months of the financial year ended 31 March 2015, compared with 1.56 trillion a year earlier. The insurer’s profit from sale and redemption of investments (including equities) was down to 11,880 crore as of the end of December, compared with 16,700 crore a year earlier.

Every insurer invests in the market from the money collected from premiums paid by policyholders.

According to the Insurance Regulatory and Development Authority of India, during the nine months ended December, LIC collected total first-year premium of 66,335.70 crore compared with the combined collection of 29,535.92 crore by private insurers.

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