In spite of mounting regulatory glare and analyst criticism, state-run financial sector powerhouse LIC has reaped rich returns from its equity market play in the last fiscal with 15 per cent gains at Rs 24,373 crore.
The benchmark BSE Sensex made 25 per cent gains during 2014-15.
The Corporation, which is the nation’s largest institutional investor, had made a profit of Rs 21,257 crore from the equity markets in the financial year 2014 and Rs 24,373 crore in 2014-15, which is a gain of 14.65 per cent.
The returns come even as the Corporation had invested Rs 7,328 crore less in 2014-15 than what it had invested in the previous year. While LIC had invested Rs 54,330 crore into the markets in 2013-14, its investments in 2014-15 were only Rs 47,002 crore, LIC chairman S K Roy said during a recent interaction with PTI.
But he did not proffer a number neither for the Corporation’s investment plans for this fiscal year nor the profit target, saying “investments and profit equities in the current fiscal will depend on the market conditions.”
However, Roy was quick to add that LIC would strive to cross this figure in FY 2016, but final figure will depend on the opportunities available in the equity market in 2015-16.
The Sensex and the Nifty posted their best show in 2014-15 since 2010, registering a hefty rise of 25 per cent in 2014-15, mainly driven by surge in foreign inflows after the Modi government took charge.
During 2014-15, the Sensex rose by 5,571.22 points or 24.88 per cent to 27,957.49 from 22,386.27 on March 31, 2014, after touching all-time high of 30,024.74 on March 4.
The Nifty on the other hand zoomed by 1,786.80 points, or 26.65 per cent, to settle the fiscal at 8,491 after scaling lifetime high of 9,119.20 on March 4 this year.
With over Rs 2 trillion holdings, LIC is the single largest investor on Dalal Street, having considerable stake in all the blue-chips.
Having over 300 million policyholders and total assets of over Rs 17.7 trillion, LIC is the largest insurer and any solvency issue with it can really create systemic issues not only for the market but for the entire economy, therefore the worry of the regulators.
As of end March 2015, LIC’s holdings in Central and state government securities stood at Rs 10,35,424.86 crore, Roy said, adding the Corporation plans to do gross investment of Rs 3.75 trillion in the current fiscal year.
As per regulations, LIC is mandated to invest 50 per cent of its funds in government securities. But 66 per cent of its investible funds are government bonds now.
It can be noted that the Reserve Bank in May had expressed its concerns over more than 9 per cent holding of LIC in banks, saying LIC’s higher stakes in a clutch of state-run and private banks could potentially create a contagion effect on the system. Some of its large holdings include a whopping 22.5 per cent in Corporation Bank.
“LIC’s stake is 9.21 per cent for the banking system as a whole. So, from the point of interconnectedness and contagion, as a probability, it is something that affects financial stability. It’s not that it’s affecting today or it’s going to affect tomorrow, but these are probabilities,” deputy governor S S Mundra had said on May 22.
This makes LIC the largest shareholder in the banking sector after the government.
LIC held a whopping 22.5 per cent in Corporation Bank, 21.4 per cent in Allahabad Bank, 13.9 per cent in SBI, 16 per cent in IDBI Bank, 12.7 per cent in Punjab National Bank and 11.33 per cent in Syndicate Bank as of FY15.
But Roy termed the holding in Corporation bank as strategic, saying “our holdings in state-run banks are within the limits prescribed by Irda norms. The only bank in which our holding is beyond 15 per cent is Corporation Bank, but this is a part of our strategic holding, and with approval of Irda and RBI,” Roy said.
LIC also holds 13.6 per cent in the third-largest private sector lender Axis Bank, in which the government also holds almost same stake, and 9.7 per cent in the largest private lender ICICI Bank apart from some stakes in banks like HDFC, Kotak Bank and Yes Bank among others.
The last fiscal saw LIC’s holdings in medium and small state-run banks increasing as the government has not given any money to them as part of the annual capital infusion.
LIC’s increasing play in the NBFC space has also been criticised. In 2014-15 while banks lent only Rs 1.595 trillion to them, insurers, led by LIC lent a much higher Rs 1.76 trillion to the NBFC sector.