By Ruma Dubey

Why does one get so perturbed when one of India’s biggest investors in the stock market, Life Insurance Corporation of India (LIC) sells instead of buying? While all eyes have been on the FIIs, whether they are buying or selling, do they still love India or not, LIC has done the smart thing –in 2012, it sold equities worth a whopping Rs.21,000 crore. And it has earned a cool profit of Rs.11,000 crore v/s profit of Rs.9000 crore earned last year. It has also been buying and in current FY13, till date, it has made purchases to the tune of Rs.22,000 crore.

But booking profits when the going is good is the true sign of a smart investor, isn’t it? The value of its portfolio (fixed income and equity) in 2000 was Rs 1.5 lakh crore and currently it stands appreciated at Rs 12.5 lakh crore. 99% of LIC’s stocks come from the BSE-200 and unlike what others might think, it comes as a revelation to know that 75% of its equity portfolio comprises of the private sector. LIC is a long term investor, unlike the FIIs. As it deploys the money from the premiums on its policies, which typically, on an average pan 15-20 years, its investment range is also around the same time period. For current fiscal, FY13, LIC has set a target of Rs.50,000 crore investment in equities and of this Rs.20,000 crore is set aside for PSU stake sales. After all, it is the one which always bails out the govt. In the true sense, it would be no exaggeration to say that LIC is the one which is actually helping the Govt bring down the fiscal deficit.

According to the Insurance Act, equity exposure in a single entity was capped at 10% but in November 2012, more of a precursor to Govt’s divestment plan, the Finance Ministry relaxed this cap from 10% to 30% of a company’s paid-up capital. Thus this relaxation means that when others do not subscribe to PSU offerings, LIC, like the knight in the shining armour which it has always been, can step up and rescue the Govt and help save its face.

LIC today manages equity which is more than the sums managed by the entire mutual fund industry in India. So do we really have to worry much when FIIs sell or rather, why we do not give much credence to LIC buying. Yes, LIC is our safety net when our fair weather friends leave!

LIC typically prefers bulk deals as incremental purchases lead to a spike in share prices. And that is the reason why it remained the biggest investor or should we the ‘saviour’ for PSU IPOs/FPOs which otherwise would have sunk. LIC literally bailed out ONGC, NMDC and the previous issues of REC, NHAI and NMDC. But LIC views these rescue acts as a great buying opportunity and shrugs away talk of MTM losses.

A look at the below given table shows LIC has been reducing stake in some, while hiking in some. Birla companies, which have been its traditional forte, LIC now seems to have either reduced stake or kept it constant. In banks, it seems to have hiked its stake all around while in ICICI bank it has reduced stake. It has also reduced stake in OMCs – HPCL and BPCL. It has booked profit in auto stocks like Tata Motors, M&M and Maruti. And it seems to be bullish about RIL and is has also hiked stake in Rcom and Idea. Take a look and maybe, this investment pattern could throw up a few lessons for us to take.

Now if only LIC makes plans to get itself listed! Now that would be finger licking delicious!