LIC changes strategy, puts more faith in B group

Life Insurance Corporation of India (LIC), the largest domestic player in the capital market, proposes to change its investment strategy and invest in B1 stocks.

This follows its overexposure to many A group shares, where, in some cases, its holding is as high as 15 to 17 per cent.

"We have invested heavily in a majority of Sensex stocks and in many instances, cannot increase our exposure further. This is why we have told our equity research team to look at companies in the B1 group," said LIC managing director R N Bhardwaj.

Since the beginning of the fiscal, LIC has invested over Rs 3,000 crore in the equity market. This is as opposed to its Rs 400 crore investments in the first quarter of last year.

The corporation has budgeted an investment plan of Rs 1,00,000 crore for fiscal 2005. However, since its exposure in many sound A-group scrips has touched 15 to 17 per cent, this limits further exposure in these scrips.

Internally, LIC normally caps investment in a single company at 15 per cent. According to the Insurance Regulatory and Development Authority (IRDA), the investment cap in any single entity is 20 per cent, unless the institution seeks prior approval from the regulator as in the case of LIC's holding in Corporation Bank.

LIC is heavily invested in the manufacturing, pharmaceutical and automobile sectors. It has exposure in Tata Power, Tata Steel, Telco, Reliance Energy, Dr Reddy's, Cipla, Wockhardt and Zee.

In the public sector, it has invested in Hindustan Petroleum Corporation, Bharat Petroleum Corporation, Oil and Natural Gas Corporation and Mahanagar Telephone Nigam among others.

The management has asked the equity research team to look at B1 group companies where the fundamentals are sound and daily average volumes are in excess of one lakh. "This will enable us to exit from the scrip if felt necessary," said Bhardwaj.

LIC is less favourable to companies where the promoter holding is high and the float is less. "We need to invest in scrips with depth," he added. The domestic equity market needs to expand and be more regulated, which will help reduce the daily volatility, he pointed out.

The team has also been asked to identify scrips, which are likely to be upgraded to the A group after some time, said Bhardwaj. LIC has some exposure to B1 stocks.

Monday the market capitalisation of LIC's portfolio has fallen by Rs 5,000-6,000 crore since the BSE Sensex fell by over 900 points in the last few months.

"The market capitalisation of our portfolio has fallen but not badly as we did not purchase much when the market was booming," said Bhardwaj.

As end of March 2004, LIC's equity investment stood at Rs 23,000 crore in terms of book value of investments. Mark-to-market, LIC's portfolio appreciated by over Rs 20,000 crore in fiscal 2004 to Rs 45,000 crore, said Bhardwaj.