How LIC made a killing with its equity strategy | Economic Times

Mumbai: Life Insurance Corporation (LIC), India’s biggest institutional investor, is on course to register its best-ever annual equity returns. It raised stock purchases by 60 per cent in the first nine months of the fiscal as its enormous cash flows helped the insurer bet on a bright future when the rest of the investing community panicked.The insurance behemoth purchased equities worth Rs 64,801 crore in the first nine months of the fiscal year up to the first week of January, as against Rs 40,510 crore in the same period last year, data accessed by ET showed. For the previous fiscal year, the state-owned insurer’s equity purchases stood at Rs 61,590 crore.“After the lockdown started, and we were sure of cash flows to take care of claim settlements, we started buying equities as the stock markets crashed day after day in the aftermath of the pandemic,” said MR Kumar, chairman, LIC. “As contrarian players, we felt better days would come.”80163108Indian equity markets plunged over 40 per cent from January highs to a four-year low on March 24 when a nationwide lockdown triggered a panic that earnings would collapse as businesses shuttered. Foreign investors, mutual funds and individual retail investors fled in March and April fearing the worst.But LIC’s investment decision to sell during the earlier part of the year and the subsequent buying when others were fleeing proved beneficial with the insurer registering record-high profits while raising its stakes in many companies at the same time.“This was a strategy to create future profits that would sustain solvency ratios and increase returns to policyholders,” said Kumar. “It worked and as of today, we have made our highest-ever profits.”The net profit on the sale of equities booked so far this fiscal year is Rs 33,085 crore, up from Rs 18,371.47 crore for the entire previous fiscal, the data showed.The profits booked this year are the highest ever profits booked in the history of the insurer. With the upward trajectory of market indices, profits for the full fiscal year are expected to double over the previous year according to officials.Gradually, over the months, as the world adjusted to the realities of Covid-19 amid easing lockdowns and booster shots by central banks in the way of liquidity and near-zero interest rates, the Indian equity indices rallied.Indices surged 85 per cent from their four-year lows since April, with the rally getting a further impetus after the news of the vaccine for Covid-19 came about in December.Equity benchmarks finished 2020 on a high note, with the Nifty crossing the 14,000-mark for the first time on New Year’s Eve, while the Sensex closed at 47,807.Meanwhile, foreign portfolio investors, too, pumped in nearly Rs 1.7 lakh crore in equities in 2020 which is highest among all emerging markets.As for LIC’s core business performance, data from the Insurance Regulatory and Development Authority of India (IRDAI) showed that the first-year premium for the state-owned insurer declined by 3.76 per cent to Rs 1.15 lakh crore in the eight months to FY21 against the same period last year.This comes even as private sector life insurers registered a growth of 3.92 per cent. LIC, however, continued to dominate the market share in the pandemic-ravaged fiscal accruing nearly 70 per cent of the first-year premiums during the reporting period.