LIC’S pvt-sector investments up after 16-yr nadir

One of India’s largest capital allocators shows a slight difference in trend when it comes to private-sector investments, following the Covid-19 pandemic.

The ~40-trillion Life Insurance Corporation (LIC) of India has been allocating an ever-decreasing share of its investments towards the private sector. This trend saw a recent reversal. The overall allocation however, remains lower than it was a decade ago.

LIC’S private sector share of investments had touched a 16-year low of 14.9 per cent in 2019, reveals an analysis of the Reserve Bank of India (RBI) data. This has risen in the subsequent two years. It was 15.3 per cent in the fiscal year ended March 2020 (201920) and 15.5 per cent in 2020-21 (FY21).

The highest allocation was 25.7 per cent in 2010 since liberalisation. It had averaged under 14 per cent between 1990 and 2003. The average increased to 19.7 per cent between 2004 and 2021. This was largely driven by the decade since 2004 when allocations had been rising.

The LIC’S offer documents for the public issue of its shares on Wednesday had additional details on its investments. While there are a few dissimilarities with the RBI figures, they offer a broad view of how allocations changed during the pandemic.

Nearly every category of investment saw a decline in allocation, with the LIC ploughing more money into central government securities (G-secs) between March 2021 and March 2019. Equity allocations also fell during the period as LIC appeared to be booking profits amid rising markets.

The only other broad sector to see increased allocation was the category for venture funds, mutual funds, alternative investment funds, and exchange-traded funds. There was a 0.26 percentage point (ppt) increase in allocation to such funds between March 2019 and March 2021. Central Gsecs saw an increase of 3.12 ppt.

Some mention of equity sales was present in LIC’S FY21 annual report.

“In the non-linked business, another ~36,472.79 crore was realised as net profit from the sale of equities, Gsecs, and other securities (including amortisation). With respect to linked business, LIC earned ~3,622.9 crore as interest and ~602.82 crore as dividend for the year; ~1,644.12 crore (including amortisation) was realised as net profit from the sale/redemption of investments,” it said.

Linked plans refer to schemes whose returns are dependent on how the market is moving. Non-linked ones are not dependent on the market and typically offer lower returns.

The investment pattern changed in the nine months that followed March 2021. Central G-secs continued to see increased allocation, up 3.38 ppt in December 2021 over March 2019. State G-secs saw further decline. They had fallen 1.23 ppt between March 2019 and March 2021. This widened to 3.14 ppt by December 2021.

Equity allocation saw an increase. It was up 2.73 per cent between March 2019 and December 2021. Coupled with the decline seen earlier, it would appear that LIC had been a big buyer during the nine months after March 2021.

While the availability of more granular data will provide clarity, a changing mix of public- and private-sector investments within the broad categories may have contributed to the overall increase in private-sector allocation.