Life Insurance Corporation of India (LIC), the largest institutional investor in the country, plans to invest Rs 60,000 crore in equities during the current financial year.
The company's equity investment had declined by 30 per cent to Rs 43,000 crore in 2010-11. Equity investments in the previous financial year stood at Rs 61,500 crore. New regulations by the Insurance Regulatory and Development Authority, which hit the sales of unit-linked policies across the industry, led to the decline.
In unit-linked insurance plans, 90-95 per cent of the funds are deployed in equity. LIC's total investment in debt and equities during 2011-12 is expected to stand at Rs 2,00,000 crore. The figure stood at Rs 1,96,000 crore in the last financial year. During 2009-10, LIC's total investments stood at Rs 1,92,000 crore.
“Based on our internal assessment, we are looking to invest Rs 2,00,000 crore across the asset class in the current financial year and 30 per cent of this would be in equities,” said a senior LIC official, on the condition of anonymity. “Apart from the new regulations, the equity market remained volatile, particularly during the second half of the financial year. This resulted in lower investments in equity in the last financial year,” the official said. The corporation, however, nearly doubled its profit through the sale of equity investments in the last financial year to Rs 17,000 crore, against Rs 9,000 crore reported in the corresponding period a year ago.
“After the new regulations were introduced in September, the sales of traditional products picked up. We were one of the few companies who introduced guaranteed pension plans based on the new pension guidelines. These factors resulted in higher investment in debt,” the official said.
Returns on pension products have been linked to the reverse repo rate and insurers have to offer a rate that is 50 basis points more than the reverse repo rate. Insurers have argued that in case of guaranteed annualised returns, they are forced to invest only in debt instruments.
“With the interest rate seen rising over the next few months, people generally tend to shift more to non unit-linked products. Hence, going ahead, equity investments would depend on this factor, apart from the normal market conditions,” the official said.
Currently, LIC can invest up to 10 per cent of the capital employed by the investee company, or 10 per cent of the fund size, in a corporate entity — whichever is lower. The capital employed includes share capital, free reserves and debentures or bonds. LIC collected Rs 86,444.72 crore by selling new policies during 2010-11. This was a rise of 22 per cent compared with Rs 70,891.5 crore in the corresponding period last year.
