| LIC office in Calcutta: Fair share
Mumbai, Dec. 21: Against the tide — that’s how the Life Insurance Corporation (LIC) likes to swim when it comes to making money on its humungous pile of cash.
Quitting when everyone’s getting in and entering when all are on their way out, has made the Big Daddy of insurance one of the nimblest stock market operators, an unconventional strategy that brings unusual gains — Rs 17,000 crore if it were to sell all its shares.
The contrast could not have been starker with foreign institutional investors (FIIs), whose stock shopping spree has given markets their best run in over four years.
LIC, however, has been buying since 2000, the year bourses tanked. “We have been selling more than we are buying today,” managing director R. . Bharadwaj said.
The corporation has an equity portfolio of Rs 24,000 crore, carefully accumulated during historic lows. “If all our equity investments are marked to market, our notional profit is over Rs 17,000 crore,” said Bharadwaj.
With its shares valued at Rs 41,000 crore, including notional gains, the insurance major has hit the ceiling of 10 per cent — of a firm’s paid-up equity — in most index stocks. “We have always been a contrarian investor,” says Bharadwaj when his attention is drawn to FIIs.
LIC has sold stocks worth almost Rs 5,000 crore against Rs 3,200 crore bought since April. In contrast, 500-odd FIIs have invested to the tune of Rs 28,000 crore.
“LIC is the most adroit among institutional investors,” an institutional broker empanelled with the company said. “The corporation follows the simple strategy of buying at the lows and selling at the highs,” the broker said.
LIC has also prudently built a trading portfolio in the past few months. “Most of our investments are long term in nature in line with the business (insurance) we are in,” Bharadwaj said.
To gain from the short-term spikes in the stock market, the corporation has also hiked its trading portfolio from Rs 500 crore last year to Rs 1,500 crore at present, a 200 per cent jump, and it may hike the portfolio even further, he added.
A trading portfolio enables the insurance major to buy and sell stocks even in companies where it has reached the maximum limit of 10 per cent.
LIC is not ruffled by the storm in the marketplace. “We have a reputation of being an historical investor on the Indian stock markets. Equities are for perpetuity. Our objectives are also long-term,” the managing director said.
“As a large domestic institutional investor we have to provide stocks to the FIIs,” Bharadwaj said.
According to Bharadwaj, it is a fact that stock markets are cyclical. “When there is an opportunity and when the bourses need that support, we’ll give that stability to the markets,” he added. LIC is confident as it has just wrested back some crucial percentage points of market share it lost some months ago to the private insurers.
LIC's investment operations are piloted by a 120-member strong team, comprising 60-70 officers. They also look after the insurance major's government securities and corporate bond investments.
“We have the funds. The brokers, financial intermediaries like merchant bankers and even companies make presentations before us. Based on that and by not taking undue risks we decide our strategy,” Bharadwaj said.