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Thursday, Jun 22, 2006

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LIC's pick: Stocks of fundamentally strong cos

Radhika Menon

To park 10 pc of investible funds in equity

Mumbai , June 21

Life Insurance Corporation of India (LIC) has invested Rs 1,800 crore in the equity markets in April and May. Despite high volatility in the stock markets, LIC continues to invest in equities.

According to Mr D.K. Mehrotra, Managing Director, LIC, the corporation plans to invest around Rs 10,000 crore this fiscal, higher than last year's Rs 8,400 crore.

"This year, the corporation will invest around 9-10 per cent of its investible funds in equity. If there are public issues of good companies, LIC will pick them up," Mr Mehrotra said.

He also said the corporation was not looking at specific sectors in terms of investment but at companies with strong fundamentals. "In the past two months, we have bought stocks of companies from banking, infrastructure, FMCG and auto sectors," he added.

The corporation is also one of the biggest investors in the debt market, particularly since traditional insurance policies require 50 per cent of the funds to be invested in government securities.

"Our investment in the debt market would depend on the government's appetite for borrowing this year," Mr Mehrotra said.

The corporation has invested around Rs 8,000 crore in the debt market in April and May. "The market is bearish and a liquidity crunch will cause interest rates to harden. The corporation will continue to buy in the auctions if the cut-off price is suitable," Mr Mehrotra said

This fiscal, the corporation's investment in the debt market will be around Rs 45,000-50,000 crore, around the same as last year's Rs 45,000 crore.

According to analysts, on an average, insurance companies buy stocks worth Rs 52-60 crore per day. However, LIC has been buying over Rs 100 crore in a day during the volatile downturns in the stock market.

Mr Sashi Bhushan, Head, (Private client group), IL&FS, Invest Smart, said that insurance companies including LIC have been investing in quality stocks at lower levels. "Insurers have the advantage of better yields on their investment since they have a long-term orientation. Unlike mutual funds, insurance companies don't have the fear of redemption and calls to buy or sell are taken in a more rational way," he said.

According to Mr Bhushan, stocks in the mid-cap sector have fallen by 60-70 per cent to lifetime lows. "These valuations demand attention and if insurers find an inherent value in them for the long-term, there is no harm," he said.

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