LIC keeps activity on Dalal Street minimal in FY14

In the new financial year, the insurer has so far been treading on the sidelines

Three weeks into the new financial year, FY14, stock brokers and market participants are raising questions about the modest activity of the Life Insurance Corporation (LIC), the largest domestic institutional investor.

While LIC usually stays away from large fresh investments in the first couple of weeks of a financial year, brokers and market participants point out the delay in the insurer’s return has been more prolonged than usual. This has resulted in market volatility heightening as even a slight increase in activity by foreign institutional investors (FIIs) results in stocks moving sharply.

According to market participants, LIC has been treading on the sidelines in the past three weeks, a trend that LIC confirmed to Business Standard.

A senior LIC official said the market had also been lacklustre and hence the insurer’s activities have slowed. He, however, insisted LIC was not ‘dormant’.

“After the close of the financial year, the market activities are usually lesser than other periods. Further, our participation depends on our perception of the markets and it will increase or decrease based on this parameter,” the official added.

Domestic institutional investors, including insurance companies and mutual funds, have net bought shares worth Rs 1,300 crore since April 1.

For the Indian markets, which are largely supported by FII flows, LIC’s investments act as a pill against the mood swings of the foreign investors. LIC follows the ‘contrarian’ investment strategy - sell when sentiment is bullish and buy when the mood is bearish. When there is heavy FII selling, the buying activity spurred by LIC acts as a support mechanism though only to a certain extent.

Similarly, a rising market is relatively slowed down by the selling activities of the insurer, said brokers.

“Markets would not have fallen as much as they did, had LIC been more active. It would have helped mitigate the risk brought on by FII activity,” said the head of institutional research of a mid-sized brokerage firm. So far this month, FIIs have been net buyers at Rs 595.9 crore. At the same time, the CNX Nifty has risen 1.4 per cent.

LIC’s cautious approach could also be attributed to the elections to be held next year in April-May, said analysts. Usually, as elections get closer FIIs are seen booking profits and exiting the Indian market, only to come back after the results are out. This would give domestic institutions like LIC an opportunity to enter the markets at the opportune time.

“It is strategic thinking – to buy when FIIs start selling. This was also true in the post-Lehman period when FIIs sold heavily and LIC pumped in about $10-12 billion, making good profits,” said Chokkalingam G, executive director and chief investment officer, Centrum.

According to a presentation by LIC to the Standing Committee on Finance, as on December 31, 2012, the insurer’s total investment corpus touched Rs 14.8 lakh crore (provisional). According to LIC’s annual report 2011-12, the total investment at March 31, 2012 was at Rs 13.49 lakh crore. LOW-KEY AFFAIR

• LIC's investment corpus as at end December 31, 2012 - Rs 14.8 lakh crore
• Of this, government securities investments accounted for Rs 7.27 lakh crore
• Housing and infrastructure investments stood at Rs  1.91 lakh crore
• LIC plans to invest about Rs 2.4 lakh crore in the current financial year
• Chairman D K Mehrotra expects LIC's corpus to touch Rs 32 lakh crore by 2020