LIC betters Sensex by a wide margin in FY05

The Life Insurance Corporation of India (LIC) has outperformed the Bombay Stock Exchange Sensex by posting a 33 per cent appreciation in its equity portfolio in 2004-05 "" more than twice the 16.1 per cent rise in the index.

The country's largest domestic institution reaped a profit of Rs 2,600 crore during the year through its trading activity. LIC's equity exposure stood at over Rs 60,000 crore on March 31, 2005, up from Rs 45,000 crore on March 31, 2004.

LIC was able to mop up a profit of about Rs 2,400 crore in the preceding financial year.

LIC has also been taking advantage of open offers in the market. It tendered one-third of its holding in ACC in the Holcim offer, and proposes to sell its 3.17 per cent stake in Crisil at a price of Rs 775 per share under Standard & Poor's conditional open offer for controlling stake in the domestic rating agency.

"We made purchases in the secondary market to the tune of Rs 9,304 crore during the year," said LIC managing director K Sridhar.

In 2003-04, the financial institution purchased stock to the tune of Rs 9,085 crore.

"We are investing about 8-10 per cent of our funds in equity," he added. LIC's gross investment in 2004-05 stood at Rs 86,036 crore.

The corporation proposes to invest about Rs 1,00,000 crore in the current fiscal, which means this would beef up its equity investment to about Rs 10,000 crore in 2005-06, depending on the state of affairs in the stock market.

LIC will now, however, need to look at top B1 scrips since it has almost reached its permitted exposure limit in group A stocks.

As per norms laid down by the Insurance Regulatory and Development Authority (IRDA), insurance companies cannot invest more than 15 per cent in a single company. This is inclusive of debt.

In 2004-05, LIC could have reaped higher gains but Sridhar said: "We do not trade too much because it could affect market sentiment."

Moreover, LIC prefers to hold onto investments as it has long-term commitments.

"Why should we lose dividend income, which can be given to policyholders," said Sridhar. He cited the example of LIC choosing to retain majority of its stake in ACC despite Holcim's open offer.