After a 16-yr low of 14.9% in 2019, LIC's private sector investments rise

LIC's private sector share of investments had touched a 16-year low of 14.9 per cent in 2019, an analysis by the Reserve Bank of India showed.

One of India’s largest capital allocators shows a slight difference in trend when it comes to private sector investments following the coronavirus (Covid-19) pandemic.

The Rs 40 trillion Life Insurance Corporation of India's (LIC) share of investments in the private sector had been going down. This trend has reversed in the recent past. The overall allocation, however, remains lower than it was a decade ago.

LIC's share of private sector investments had touched a 16-year low of 14.9 per cent in 2019, an analysis by the Reserve Bank of India showed. This has risen in the subsequent two years. It was 15.3 per cent in the FY20 and 15.5 per cent in FY21 (see chart 1).

The highest allocation was 25.7 per cent in 2010 shows data since liberalisation. It had averaged under 14 per cent between 1990 and 2003. The average increased to 19.7 per cent between 2004 and 2021. This was largely driven by the decade or so since 2004 when allocations had been rising.

LIC’s offer documents for the public issue of its shares on May 4 had additional details on its investments. While there are some differences with the RBI figures, they provide a broad indication of how allocations changed during the pandemic.

Nearly every category of investment saw a decline in allocation with the LIC putting more money into central government securities between March 2021 and March 2019. Equity allocations also fell during the period as the LIC appeared to be booking profits amid rising markets. The only other broad sector to see increased allocation was the category for venture funds, mutual funds, alternative investment funds, and exchange traded funds. There was a 0.26 percentage point increase in allocation to such funds between March 2019 and March 2021. Central government securities saw an increase of 3.12 percentage points.

Some mention of the equity sales was present in LIC’s 2020-21 annual report.

“(In the non-linked business)…Another Rs 36,472.79 crore was realised as net profit from the sale of equities, government securities, and other securities (including amortization)….  In respect of linked business…(LIC)….has earned  Rs 3,622.90 crore as interest and Rs 602.82 crore as dividend for the year Rs 1,644.12 crore (including amortisation) was realized as net profit from sale/redemption of investments,” it said.

Linked plans refer to schemes whose returns are dependent on how the market is moving, non-linked ones are not dependent on the market and typically offer lower returns.

The investment pattern changed in the nine months that followed in March 2021. Central government securities continued to see increased allocation, up 3.38 percentage points in December 2021 over March 2019. State government securities saw a further decline. They had fallen 1.23 percentage points between March 2019 and March 2021. This widened to 3.14 percentage points by December 2021.

Equity allocation saw an increase. It was up 2.73 per cent between March 2019 and December 2021. Coupled with the decline seen earlier, it would appear that LIC had been a big buyer during the 9 months after March 2021 (see chart 2).

While only the availability of more granular data would provide clarity, a changing mix of public and private sector investments within the broad categories may have contributed to the overall increase in private sector allocation.