Market @ peak: ‘LIC won’t buy equity heavily’

After investing almost 52 per cent more in equities in the first eight months of the current financial year, Life Insurance Corporation of India (LIC) has decided to tamp down its aggression.

The state-owned life insurance behemoth said it will book profits from its equity investments whenever the opportunity arises. This, in a way, will also offset the fall in income from debt investments in the current declining interest rate scenario.

Investments

LIC made equity investments amounting to ₹44,000 crore, including in the initial public offers of GIC Re and New India Assurance, and other government disinvestment programmes in the April-November period against ₹29,000 crore in the year-ago period. In FY2017, the life insurer had made equity investments amounting to ₹47,000 crore.

In the first half of FY2018, LIC made equity investments amounting to ₹39,224 crore against ₹17,974 crore in the year-ago period.

Vijay Kumar Sharma, Chairman, said his corporation had booked a profit of ₹12,374 crore on sale of equity investments in the first six months of FY18 against ₹10,643 crore in the year-ago period, up 16.26 per cent year-on-year (y-o-y) basis.

“We are contrarian [when it comes to investment]. Market [equity] is at peak. We will be selling whenever we have an opportunity…We will keep on doing routine sale and purchase, but we will not be aggressive in buying equities,” explained Sharma.

On the debt side, because of the macroeconomic scenario, the LIC chief underscored that there are some challenges, including falling interest rate impacting income.

As at September-end 2017, LIC’s total investment in Government Securities (G-Secs) and State Development Loans (SDLs) was up 18 per cent y-o-y at ₹16,15,000 crore. Investment in equities increased by 15 per cent y-o-y at ₹5,71,000 crore. Investment in debt nudged up about 2 per cent at ₹3,08,000 crore.

G-Secs, SDLs

In the first six months of the financial year, the life insurer invested ₹1,61,000 crore in G-Secs and SDLs. On the necessity of long-dated G-Sec issuance and LIC’s appetite for participating in recapitalisation of State-owned banks, Sharma said: “We would certainly like to impress upon the government and RBI to give us [issue] more and more long-term bonds. Our appetite to invest in such bonds will be up to ₹20,000 crore in the December 2017-March 2018 period.

“Whenever banks are in need of capital, we will be one of the investors. We will not be ‘the’ investor. Depending upon their performance, depending upon their capacity to come out [of bad loans] quickly, we will support them.”

As at September-end 2017, LIC’s gross non-performing assets (GNPAs) stood at ₹19,228 crore (₹17,090 crore as at September-end 2016). Of this, exposure amounting to ₹13,000 crore was as part of consortium lending.

Hemant Bhargava, Managing Director, said the corporation had exposure to 10 of the 12 large accounts that banks have proceeded against under the Insolvency and Bankruptcy Code. LIC’s exposure to these accounts aggregated about ₹4,300 crore.

Meanwhile, LIC’s total premium income in the first six months of the current financial year was up 12 per cent y-o-y at ₹1,48,037 crore. Gross total income increased 12.56 per cent at ₹2,50,267 crore.

In the first six months of FY18, the corporation achieved 75 per cent of the full year first premium income (FPI) target of ₹38,000 crore.

“As things are today, we will be able to surpass the budget [of ₹38,000 crore FPI in FY18] substantially. It looks like we will be able to surpass it before the year closes.

“...Overall, there is a positive environment for life insurance [it has happened after so many years]. Simultaneously, the positive outlook of the regulator also on different aspects, including giving product approvals very quickly, has helped us,” said Sharma.

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