LIC to invest Rs2.25 trillion in markets this fiscal

Mumbai: State-owned Life Insurance Corp. of India (LIC), the country’s biggest insurer, expects to invest at least ₹ 2.25 trillion in the financial markets in the year to next March, seeking to tap a potential upturn in the economy after the presentation of the national budget on 10 July.

The expected investment by LIC marks an increase of ₹ 15,000 crore, or 6.6%, in the money the insurer spent buying securities in the last fiscal year. The figure may be revised higher, said two senior officials at LIC, the single largest investor in India’s financial markets.

“LIC will decide on its final investment estimates after an internal meeting, scheduled to be held in the next fortnight or in the first week of August. Roughly the estimates could be around ₹ 2.25 trillion,” said one of the two officials, both of whom spoke on condition of anonymity.

“Our investment decisions are dynamic in nature. The investment department assesses the equity, debt and money market conditions every day before investing. So we look for quality of stocks rather than any particular sectors for investing money. But investments made in equity are typically long-term in nature,” the same person said.

Even so, the BSE’s benchmark Sensex has risen 19% this year, making it the top performer among the world’s 10 biggest markets.

The first official cited above said that most of the ₹ 2.25 trillion of estimated investment by LIC could be allocated to government securities because equity markets have been trading high for several months and the insurer typically is used to selling shares on market highs and buying stocks on lows.

The Sensex is trading at 15.4 times projected 12-month earnings. The valuation climbed to 16 times on 7 July, the most expensive since April 2011, after the index climbed to a record high that day.

“LIC’s investment decision looks to be in line with the trend that most domestic institutional investors, tend to follow,” said Sudip Bandyopadhyay, CEO and managing director, Destimoney Securities Pvt. Ltd. While foreign institutional investors and high networth individuals tend to buy in a rising market, domestic institutional investors (DIIs) tend to sell, he said.

“But as the overall capital market sentiment looks to be reviving, a lot of primary market issuances are likely to hit the market this year, in which a large chunk will be picked up by DIIs, including LIC,” Bandyopadhyay added.

The two LIC officials said the state-owned institution’s final investment will depend largely on its investable surplus and premium collections.

In fiscal 2014, LIC earned ₹ 90,123.76 crore in first-year premiums. That makes up three-quarters of the total first-year premium collected by the life insurance industry, in which LIC competes against 23 private-sector firms.

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.

In February 2013, insurance regulator Insurance Regulatory and Development Authority allowed insurance companies to increase their exposure to equity in a single company to 12% and 15%, depending upon the size of the controlled fund of the insurer, from 10% allowed earlier.

At the end of fiscal 2014, life insurers held total assets of at least ₹ 20 trillion, with at least ₹ 5.26 trillion in equity, ₹ 14.52 trillion in fixed-income instruments and ₹ 28,334 crore in other instruments, according to the Life Insurance Council, the representative body of life insurers in India.

LIC channelled about 70% of its investments during the year into government securities alone in the absence of enough quality debt issuances and range-bound equity markets, said the first official. Without specifying a figure, the first LIC official said the corporation may have made record profit bookings in the current fiscal given the bullish markets.

According to stock exchanges, DIIs, which include mutual funds, insurers, banks and other financial institutions, sold domestic shares worth at least ₹ 1.27 trillion and bought shares worth at least ₹ 1.07 trillion since April 2014, making for a net outflow of at least ₹ 19,400 crore by DIIs.

Of about 6,000 listed firms, LIC held stakes in at least 361 at the end of March. Only 957 firms have disclosed their June-end shareholding pattern so far; LIC has a holding in 125 of them.

According to Mint research, the value of LIC’s total net sales in these 125 firms is estimated at around ₹ 1,900 crore as per the market closing on 14 July. This number is likely to get bigger as the rest of the firms start disclosing their latest shareholding pattern.

“During this fiscal too, a majority of our investment may be in G-Secs, but the estimates will be drawn on the basis of the government’s borrowing programme,” said the first official.

Bandyopadhay said the outlook for the debt market, too, is bullish with a number of stalled projects getting delayed government clearance in the past year to spur the economy back to a faster pace of growth.

Bloomberg contributed to this story.