Mumbai: Life Insurance Corp. of India, the country’s largest domestic institutional investor, has cut its equity investment target for the year ending 31 March 2017 to Rs50,000 crore from Rs60,000 crore because of adverse market conditions. Although it collected higher new business premium this year as compared to last year, due to lack of opportunities in an insipid equity market, the insurer will invest the surplus money earned from premiums in fixed income papers instead of stocks, according to two people familiar with LIC’s plans, including an official at the insurer. “Around Rs28,000 crore has been invested in equities this financial year so far by LIC. The overall investment target is intact but the target for equity investments has been revised downwards by 10-15% because of several factors that are currently playing on the market and stopping it from offering enough buying opportunities,” said the first person. He said movements in stocks in the market have been mostly flat over the past three months and this may continue for a few more months, which restricts LIC’s investment opportunities in the equity space. “Also, the government’s divestment issues or any other large primary market issuances are absent and there is a slowdown in demand in the economy due to demonetization. It is evident that earnings growth in core sectors will be muted this time. We have about three months left in the financial year and it is unlikely that the market will offer so many opportunities that any investor will be able to buy stocks worth Rs30,000 crore,” the first person added. Santosh Singh, head of research at Haitong Securities India Pvt. Ltd said it is a wise strategy to put in the money when the prospects of higher returns are better. The investment approach of LIC, which controls total assets worth about Rs21 trillion and manages life insurance for at least 250 million people through 300 million life policies, is a reflection of how it sees the markets. According to Insurance Regulatory and Development Authority of India, or Irdai, LIC earned a total first year premium of Rs75,263.09 crore between April and November, as compared to Rs52,291.75 crore during the corresponding period a year ago. Every financial year, LIC earmarks funds for various markets, including equities. On 7 April, Mintreported that LIC is likely to invest close to Rs2.7 trillion in the capital markets during the year to March 2017, of which about Rs68,000 crore was likely to be invested in equity markets in keeping with the insurer’s investment pattern, under which it allocates 25-30% of its investible surplus to equity. Typically, LIC increases its equity investment target by 15-20% every financial year. However, this year, the state-run insurer had fixed a budget of investing around Rs60,000 crore in equities, which was revised downwards in December. “Like any long term fund manager, LIC is being very prudent and stock-specific while taking equity calls,” said the second person. According to this person, only mutual funds are taking positions in the equity market because the inflows there are steadily increasing through equity SIPs and the fund managers are forced to invest. The surplus money left due to lower equity investments is being invested in fixed income papers also because the focus of LIC is also increasing on annuity and pension products, which are currently fetching it maximum premium earnings, the second person said. “Just for the sake of meeting a target, it does not make much sense in this kind of market to invest a large sum of Rs35,000 -40,000 crore in equities in just three months, without ascertaining the returns prospect, and especially when a bulk of the premium has come under annuity products,” the second person added.
