As the stock market hit new highs, the Life Insurance Corporation of India (LIC) earned a record 37,000 crore profit from share sales in 2020-21, the highest in its 65-year history. The current profit is up 44.4 percent from the fiscal 2020 profit of 25,625 crore from stock sales.
During the fiscal year, India’s largest institutional investor bought shares worth a total of 94,000 crore, the highest amount ever. Managing director Mukesh Kumar Gupta said in an email responded, “By churning the equity portfolio based on available opportunities and maintaining a long-term high-performing portfolio, we were able to maximise benefit the sale was across sectors and motivated by our emphasis on generating fair profits and available business opportunities.”
With about 34 lakh crore in assets under management, India’s biggest and only state-run life insurer is also the country’s largest investor. It has been the government’s largest financial sponsor, especially when it comes to divestment programmes.
The selling of shares in LIC’s broad, non-linked portfolio, which includes conventional life insurance policies, generates the majority of the company’s income. The record profit enables LIC to pay greater incentives and returns to policyholders, as well as a higher dividend to the government; it raises LIC’s investible surplus, which can help support financial markets in volatile times; and it aids in attracting new customers due to its ability to produce such profits.
Mukesh Kumar Gupta said “Quality assets are acquired and maintained as part of the corporation’s investment policy… We churn the portfolio as well to realise some gains and move some stocks. Our investment strategy aims to meet policyholders’ realistic expectations while also ensuring the funds’ safety,”. Additionally, “We take advantage of emerging market opportunities to join and exit companies to generate income, as well as to build a solid equity portfolio that provides fair long-term returns,”. A resurgent stock market has contributed to the strong returns.
The state-run insurance giant’s record profits stemmed from significant churning in its equity portfolio, in the wake of uncertainties arising from the widespread covid crisis, which has impacted industries and companies where the state-run insurer has traditionally invested billions of rupees over decades.
Infrastructure, real estate, financial services, consumer durables, automobiles, metals and mining, electronics, entertainment, and services have all suffered significant losses. This has limited the upside for companies in these sectors’ stocks. LIC has traditionally invested the majority of its funds from its investible surplus in these sectors. LIC has been reducing its investment in these sectors in favour of new areas where it had a limited exposure prior to the covid period.
According to Mint research, LIC has significantly reduced its exposure to the infrastructure sector, which is one of the worst-affected. LIC’s infrastructure spending has decreased from 24,000 crore in March 2020 to just 4,100 crores now. Since most IT firms’ businesses are down due to the demand slowdown in the US and Europe, with offices shutting down, LIC’s investment in the IT and software sector has dropped from 55,000 crore in March 2020 to 11,600 crores now. The pharmaceutical industry, on the other hand, has attracted LIC the most as an investor. It has increased its pharma investment to over 37,000 crore, up from 17,700 crore last year.
