Mumbai: Life Insurance Corporation of India (LIC), the country’s biggest institutional investor, plans to invest at least Rs4 trillion in the stock markets in 2017-18, the highest ever in absolute terms, two persons with direct knowledge of the plan said.
The decision to raise its annual investment target by at least Rs50,000 crore from 2016-2017 was taken after a steady surge in the state-owned insurer’s premium income for three consecutive quarters, said the two persons, who didn’t want to be named because LIC’s annual targets are market-sensitive and kept confidential.
An email sent to LIC did not elicit any response.
LIC chalked out its investment plans for the year at a recent meeting of top officials.
“LIC invested at least Rs3.5 trillion during the last financial year, which will be disclosed in LIC’s annual report that will be sent for parliamentary approval in the next few weeks. The annual report of LIC will be put out only after parliamentary approval,” one of the two people cited above said.
The hike in LIC’s investment target is based on the hope that the uptrend in premium collections will continue during the current financial year, this person said.
In the December quarter, LIC collected Rs68,605.8 crore in premiums on a net basis. In the March quarter, the insurer’s net premium collection was Rs99,542.34 crore. In the April-June period, the insurer collected around Rs1.5 trillion in net premiums.
Insurers invest money in the capital markets from premium collections and income from other investments.
“If the premium collection trend continues, during this financial year, LIC should be able to increase its first year premium collections by at least 25%,” said the first person.
LIC is the largest of 24 life insurers in the country with total assets of at least Rs23 trillion. Even though LIC has the highest number of policyholders (at least 260 million) and the largest premium base, the state-run insurer grew faster than the industry in terms of first-year premiums in financial year ended 31 March.
According to the Insurance Regulatory and Development Authority of India (IRDA), during the financial year 2017, the life insurance industry’s total first year premium income increased 26% to Rs1.75 trillion.
LIC’s first-year premium collection rose 27% to Rs1.24 trillion, contributing almost 71% of the industry’s first-year premium income.
According to the insurer’s quarterly disclosures, LIC earned Rs3 trillion in total premium income in the financial year, up from Rs2.66 trillion in the previous year.
As the equity market continues to be rising in most trading sessions, LIC is finding fewer opportunities to invest in stocks, said the second person. BSE’s benchmark Sensex has risen 20% this year, making it the second-best performer in Asia after Hong Kong’s Hang Seng Index. So far this year, foreign and domestic institutional investors have bought $8.56 billion and Rs23,310 crore, respectively, in equities.
The second person said LIC is not taking a contrarian call at the moment.
“Unless there are sharp corrections, which is unlikely any time soon, LIC may not invest much in equities. This is also appropriate according to the product strategy of LIC. During the current financial around Rs50,000 crore in shares of domestic firms may be invested in the share market,” said the second person.
Most of the investment by LIC this year will be allocated in fixed-income securities. As per the rules of the insurance regulator, at least 50% of an insurer’s investments are required to be made in government securities.
That means LIC may channel most of the planned investment into bonds.
Indian stock markets have sufficient liquidity at the moment and any sharp increase in stock investments by LIC or other large investors may raise indices to a level where any adverse event may result in steep losses for investors, said Sudip Bandyopadhyay, chairman and managing director of Inditrade Capital Ltd.
The second person mentioned above said LIC is not taking a contrarian call at the moment.
“The stock market has gone up and it is risky to invest money in equities for the time being,” this person said. “Unless there are sharp corrections, which is unlikely any time soon, LIC may not invest much in equities. This is also appropriate according to the product strategy of LIC. During the current financial around Rs50,000 crore in shares of domestic firms may be invested in the share market.”
According to Bandyopadhyay, this strategy works well both for the market as well as LIC.
“This is a good strategy and unlike mutual fund managers, LIC is capable of following it since the insurer can afford to sit on idle cash, without worrying about the impact on net asset values (NAVs) of funds managed,” added Bandyopadhyay.
