LIC ramping up large cap stocks in kitty

Life Insurance Corporation of India (LIC) has a strong preference for large cap companies, which are priced higher but are considerably less risky compared with the small and mid-cap companies.

In the first three months of 2007-08, LIC invested about Rs 6,756 crore in equity shares of just three companies, Ambuja Cement, Infosys and Hindalco.

This amounted to 60 per cent of the public sector insurer's increase in equity investments during the quarter, according to a report by Anand Rathi Securities. 

WHAT'S IN
Market capital Rs billion	Holding Jun-07 Rs million	% of equity holding
0-5	8,940	0.61
5-20	49,698	3.41
20-25	15,135	1.04
25-50	68,609	4.71
50-100	1,42,504	9.78
Over 100	11,72,346	80.45
Total	14,57,231	100.00

By end of June 2007, the country's largest financial services entity's investments in large cap companies with a market cap of more than Rs 2,500 crore were as much as 95 per cent of its equity portfolio.

Of this, 77 per cent went into the 50 companies included in the National Stock Exchange's Nifty index, 18 per cent into non-Nifty large cap companies and 5 per cent in small and mid cap companies.

Between March and June 2007, LIC's investments in Nifty stocks rose by almost 10 per cent to Rs 1,12,600 crore. By end-June 2007, its equity portfolio was Rs 1,45,700 crore.

However, among the Nifty stocks, LIC has has none or negligible exposure to HDFC Bank, Sterlite Industries, Sun Pharma and Wipro, but has a significant exposure to their peers.

Sujan Hajra, chief economist at Anandrathi Securities, said "Infosys has lost a lot of value and its price has fallen. But investors see value in it."

"The large caps are in the F&O segment and so you can hedge your price risks. But this is not possible in the mid and small caps. Secondly, the market has information about large cap companies. Thirdly, large caps exhibit lower price volatility unlike the small and mid caps." Hajra added.

LIC's total investments in FY08 will be 1,17,000 crore against Rs 90,000 crore last year. Till August this year, LIC has invested Rs 12,000 crore in equities.

The role of insurance companies in the Indian equity market has significantly increased in the recent past. According to the data available with the Life Insurance Council, the total investments of life insurance companies in the equity market is approximately Rs 1,50,000 crore as on 31st March 2007.

LIC's outstanding investments in Nifty companies are higher at 4.8 per cent compared with 3.8 per cent held by UTI and and other MFs.

There is a sharp increase in the corpuses of life insurance funds since FY04. According to the RBI data, the households' outstanding investments in the life insurance funds have doubled from Rs 510 billion in FY04 to Rs 1050 billion in FY07.

The unit linked insurance policies (ULIPs) accounted for over 70 per cent of the new business premiums collected by the insurance companies.

"The insurance companies are exerting a greater influence than mutual funds. The average churning rate for mutual funds is three times a year, while it is lesser in case of insurance companies. In mutual funds, the fund managers have an objective to beat the benchmark in the short term. Mutual funds look for value and growth. In the large caps, you get growth but not value, while small caps offer both value and growth." according to Hajra.