Life Insurance Corp. of India (LIC) booked a record ₹37,000 crore profit from share sales in 2020-21, the highest in its 65-year history, as the stock market reached record highs. The latest profit is a 44.4% jump against its ₹25,625 crore profit from stock sales in fiscal 2020.
During the fiscal year, India’s largest institutional investor purchased shares amounting to ₹94,000 crore, also its highest ever.
“We booked maximum profit by churning the equity portfolio, depending on available opportunities and also to maintain a long-term high-performing portfolio. The sale has been across sectors and driven by our focus on generating reasonable profits and available market opportunities," managing director Mukesh Kumar Gupta said in an email reply to Mint.
India’s largest life insurer is also the largest investor in its markets, managing assets worth around ₹34 trillion. It has been the government’s biggest financial backer, especially in its divestment programmes.
LIC’s profits primarily come from the sale of shares in its large, non-linked portfolio, which includes traditional life insurance policies.
The record profit increases LIC’s ability to pay better bonuses and returns to policyholders and better dividend to the government; expands LIC’s investible surplus which can support stock markets at uncertain times; and helps attract new customers due to its ability to generate such profits.
“The corporation’s investment strategy is to acquire and maintain quality assets… We also churn the portfolio to realize some profits and also switch some stocks. Our investment strategy aims to meet the reasonable expectations of policyholders along with the safety of the funds," said Gupta.
The bumper gains have been partly helped by a resurgent stock market. “We take advantage of emerging market opportunities to enter and exit companies to generate profits as well as to create a strong equity portfolio to give reasonable returns over a long-term horizon," Gupta said.
LIC’s record profits came from significant churning in equity portfolio in the wake of uncertainties arising out of widespread covid crisis impacting industries and companies in which the state-run insurance giant has traditionally been allocating billions of rupees over decades.
Sectors, including infrastructure, real estate, financial services, consumer durables, automobile, metals and mining, hardware, entertainment and services, have been badly hit. This has limited the upside for the stocks of companies from these sectors. Traditionally, in these sectors, LIC has been predominantly investing most of its funds from its investible surplus.
LIC has been reducing investment in these sectors and shifting focus to new sectors where it used to have a small exposure in the pre-covid era.
According to Mint research, LIC has cut its exposure drastically in the infrastructure industry, one of the worst-affected sectors. LIC’s investment in infrastructure came down from ₹24,000 crore in March 2020 to just ₹4,100 crore now. In the IT and software sector, LIC’s investment has come down from ₹55,000 crore in March 2020 to ₹11,600 crore now, since businesses of most IT firms are down due to the demand slowdown in the US and Europe, with offices closing down.
On the other hand, the pharmaceutical industry, which has gained due to the pandemic, has attracted LIC the most as an investor. Its investment in pharma is now at over ₹37,000 crore against ₹17,700 crore last year. As demand for FMCG products shot up with people rushing to buy more personal and home care products, LIC has increased investment in the FMCG industry from ₹15,000 crore last March to around ₹50,000 crore now.
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