LIC books record high profit at Rs37,000 crore from share sales amid covid-19

LIC’s profits primarily come from sale of shares in the insurer’s large, non-linked portfolio, which includes traditional life insurance policies. (REUTERS)Premium
LIC’s profits primarily come from sale of shares in the insurer’s large, non-linked portfolio, which includes traditional life insurance policies. (REUTERS)
 4 min read . Updated: 29 Apr 2021, 04:18 PM IST Anirudh Laskar

MUMBAI : India's largest institutional investor, Life Insurance Corp. of India (LIC) has booked a whopping Rs37,000 crore profit from share sales in fiscal 2021, the highest ever profit booked by LIC in its 65-year history of operations.

During the fiscal 2021, LIC also purchased shares amounting to Rs94,000 crore, which, too, is the highest ever equity purchase by LIC in its history.

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“We booked maximum profit by churning equity portfolio depending on available opportunities and also to maintain long-term high performing portfolio. The sale has been across sectors and driven by our focus on generating reasonable profits and available market opportunities," said LIC managing director Mukesh Kumar Gupta

LIC, which manages assets worth around Rs34 trillion, is the largest and only state-run life insurer in the country. However, the insurer is also the largest investor for Indian markets and has been the government’s biggest financial backer, especially in the exchequer’s divestment programmes.

LIC’s profits primarily come from sale of shares in the insurer’s large, non-linked portfolio, which includes traditional life insurance policies.

LIC’s record profits essentially mean: one, the insurer will be able to pay better bonuses and returns to policyholders and better dividend to the government; two, it expands LIC’s investible surplus, which can provide vital support to stock markets at an uncertain time; and, three, the ability to generate such profits may attract new customers.

“The corporation’s investment strategy is to acquire and maintain quality assets…We also churn the portfolio to realize some profits and also switch some stocks. Our investment strategy aims to meet the reasonable expectations of the policyholders along with the safety of the funds," said Gupta.

LIC’s latest record profit is a 44.4% jump from the Rs25,625 crore gains made by the insurer from stock sales in fiscal 2020.

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The bumper gains have been partly helped by a resurgent stock market.

“We take advantage of emerging market opportunities to enter and exit companies to generate profits as well as to create a strong equity portfolio to give reasonable returns over a long term horizon," said Gupta.

LIC’s record profits came from significant churning in equity portfolio, in the wake of uncertainties arising out of widespread covid-19 crisis impacting industries and companies in which the state-run insurance giant has traditionally been allocating billions of rupees for many decades.

Sectors including infrastructure, real estate, financial services, consumer durables, automobile, metals and mining, hardware, entertainment and services have been hit the hardest due to covid-19.

This has limited the upside for the stocks of companies from these sectors.

Traditionally, in these sectors LIC has been predominantly investing most of its funds from its investible surplus.

LIC has been reducing investment in these sectors and shifting its focus on new sectors in which LIC used to have a small exposure in the pre-covid era.

According to a Mint research, LIC has cut its exposure drastically in the infrastructure industry, which is one of the worst affected sectors by covid-19. LIC's investment in infrastructure has come down from Rs24,000 crore in last March to just Rs4,100 crore now.

In the IT- software sector, LIC's investment has come down from Rs55,000 crore in last March to Rs11,600 crore now, since businesses of most of the IT firms are down due to slowdown in demand in the US and Europe with offices closing down in the wake of covid-19.

On the other hand, the pharmaceutical industry, which has seen the maximum rise in business due to the pandemic, has attracted LIC the most as an investor. LIC's investment in pharma is now at over Rs37,000 crore as against Rs17,700 crore last year.

As demand for FMCG products shot up with people rushing to buy more personal and homecare products in the wake of covid-19, LIC has increased investment in the FMCG industry from Rs15,000 crore in last March to around Rs50,000 crore now.

Gupta said that considering the current wave of covid-19, LIC will be cautious while taking investment decisions, while looking for a balanced and diversified portfolio.

Going forward, in fiscal 2022, though equity market is at its highs stock specific opportunities in every sector are available and LIC continues to buy such value stocks on the basis fundamental strength and valuations, said Gupta.

“Investments in FY22 will depend on investible surplus available with the Corporation which we expect to be healthy. Normally, LIC invests 15% to 20% of total investments in equity depending on the available market opportunities," added Gupta.

LIC’s share purchase in fiscal 2021 is 52.6% higher than Rs61,590.02 crore worth of equity purchase in fiscal 2020.

LIC made most of its share purchases in the January-March period.

“At present we are focusing to generate maximum available surplus for investment and review our investments regularly… We are mainly concentrating our investments in highly liquid, leading companies of each sector with strong fundamentals. We make objective analysis of fundamentals of the company," added Gupta.

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