Mumbai, May 17: The Life Insurance Corporation (LIC), the largest domestic equity investor, tried to calm the panic-stricken stock markets by buying heavily as share prices bottomed out.
In Yogakshema, LIC’s headquarters, it was business as usual. Employees at LIC had little clue about the shenanigans on the bourses. The fifth floor office of the life insurance major that houses the dealing room and the investment desk saw frenetic activity as the company bought shares in a market that had very few buyers today. LIC has always been a contrarian investor.
LIC's investment operations are piloted by a 120-member strong team, comprising 60 to 70 officers. They also look after the insurance major’s government securities and corporate bond investments.
LIC officials declined to comment on the buying spree. Today, LIC was on auto-pilot as its chairman S. B. Mathur is in Paris and managing director R. . Bharadwaj is in South Korea. However, they were keeping tabs as LIC’s dealing room swung into action making the most of a buying opportunity rarely witnessed on the bourses when a record Rs 3,00,000 crore of shareholder wealth was wiped off in a couple of days.
LIC started buying when the markets opened for trading for the third time, brokers said. This quelled the bloodbath to some extent, brokers said. Unit Trust of India (UTI) was also a buyer with smaller quantities, said market players.
It is not clear whether the government had asked LIC and UTI to invest on the markets today. But LIC requires very little prodding when the markets are in a panic. “We always buy at lows and sell at highs. This is our simple strategy,” a senior LIC official said.
“Being an insurance company, we have a longer-term view. We make investments for a slightly longer timeframe than the rest with at least five to seven years’ tenure,” the LIC official said.
LIC is one of the savviest domestic institutional investors. It was a huge seller on the bourses when foreign institutional investors (FIIs) were buying aggressively as the sensex hit 6,000 levels in January 2004.
It had kept nearly Rs 2,000 crore for the initial public offerings (IPOs) that hit the markets in March. Luckily for the insurance major, the allotments were far less than anticipated.
LIC has been buying stocks since 2000, the year when markets tanked. In fact, Bharadwaj has admitted earlier that LIC was selling more than it was buying in December 2003, when the FIIs were coming in droves to invest in Indian equity.
The company has an equity portfolio of Rs 26,000 crore, which has been carefully accumulated during the historic lows. Its notional profit is well over Rs 17,000 crore if all equity investments were measured mark to market, Bharadwaj had said earlier at a press conference.
Thus, the total value of its equity investments is Rs 43,000, including the notional gains. The insurance major has reached the maximum limit its internal rules have demarcated in most of the heavyweight index stocks.
In most of the index stocks, LIC had touched the 10 per cent limit.
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LIC has sold stocks worth almost Rs 5,000 crore against Rs 3,200 crore purchased since April 2003. This is in contrast to the investment behaviour of the 500 odd FIIs, who are net investors to the tune of Rs 28,000 crore in the same period.
“LIC is the savviest among institutional investors,” an institutional broker empanelled with LIC said. “It is the ideal and the simplest strategy for any equity investor. Buy at the lows and sell at the highs,” a prominent BSE broker said.
While LIC has been a net seller on the markets, it has also prudently built a trading portfolio in the past few months. Most of LIC’s investments are long-term in nature in line with their business (insurance).
To gain from the short-term spikes on the stock market, the company has also hiked its trading portfolio from Rs 500 crore last year to Rs 1,500 crore at present, a jump of 200 per cent. It would have hiked it further, said the broker.
A trading portfolio enables the insurance major to buy and sell stocks during the short-term even in companies where it has reached the maximum limit of 10 per cent.