In a bid to sharpen its financial arsenal, Life Insurance Corporation (LIC), the country?s largest institutional investor, has undertaken an overhaul of its investment operations.

This is expected to set a trend among domestic institutional investors in the country?s stock markets at a time when foreign institutional investor (FII) interest has taken a beating.

With over Rs 7.5 lakh crore in investments as of March 2008, LIC has carved out an investment (monitoring & accounting) department to be headed by an executive director to maximise returns. This department, in effect, is aimed at modernising LIC?s entire investment functions.

Churn of investment portfolios by Indian companies to extract greater value has remained subdued, largely as a function of straitjacket government regulations and the lack of adequate research support to guide managers in timing the markets. That is expected to change now. It could mean that LIC?s portfolios in companies that underperform the market will face stricter scrutiny.

In a note to employees, LIC chairman TS Vijayan noted, ?The size of the corporation?s investments in recent times has been growing tremendously, and the corporation is enhancing its focus on monitoring and accounting of investments.? More than 27% of LIC?s income comes from investment operations. Out of a total income of Rs 1.5 lakh crore in 2007-08, Rs 40,655 crore accrued from investment income.

Vijayan?s note explains that that the new department will ensure better control over investments within regulatory provisions and internal guidelines by adopting advanced technology support for efficient analysis and reporting.

Insurance companies, including private and public sector majors, have played a major role in equity markets, especially in 2008. They have proved to be almost a counterbalancing force to FIIs. With rising assets, insurers are now demanding greater freedom from the regulator, IRDA, and government to maximise their returns from such assets.

Sources in other state-run insurance companies, particularly the general insurance majors, said that modernisation of their investment departments is also taking place, and for this purpose, they have also sought the expertise of Boston Consulting Group and PricewaterhouseCoopers. Together, these state-run general insurers control over Rs 60,000 crore in investments.

Domestic institutional investors, of which insurance companies form a significant chunk, have invested over Rs 46,000 crore in Indian equities to date in 2008 according to stock exchange data. FIIs who were prime drivers of the Indian capital market in last few years have been net sellers in the same period. Securities & Exchange Board of India data shows that FIIs have been net sellers of about Rs 27,848 crore.

LIC has also appointed a highly competent investment team and chartered accountants as fund managers. It is also encouraging entrepreneurial talent through participation in venture funds. In 2007-08, the corporation earned Rs 10,000 crore in profit from the sale of equities. The corporation?s equity portfolio straddles almost all major companies and nearly all sectors. LIC?s gross investments in 2007-08 was Rs 1,50,303 crore, and the book value of its investments as of March 2008 is pegged at Rs 6,65,636 crore. Assets under management in the ULIPs portfolio nearly doubled to Rs 7715.28 crore.

The corporation expects to also enhance investment expertise through training and strengthening of investment monitoring to drive its returns, the chairman?s note says.

The enhanced level of investment is due to increased volumes of its Ulip portfolio, more auctions of government securities, oil, food and fertiliser bonds, besides its normal investment activities.