LIC In­dia profit seen slump­ing

The Pak Banker - - COMPANIES/BOSS -

Life In­sur­ance Corp. of In­dia (LIC) is ex­pected to post a year-onyear de­cline of 40% in profit-book­ing on equity in­vest­ments in 2015-16, as choppy mar­kets take their toll on the coun­try's largest in­vestor.

LIC is ex­pected to book a profit of Rs.15,000 crore on eq­ui­ties in the year to 31 March, a five-year low, two per­sons di­rectly fa­mil­iar with LIC's in­vest­ment ac­counts said. They spoke on con­di­tion of anonymity as the fig­ures are not yet in the pub­lic do­main.

Lower prof­its from in­vest­ments will hurt LIC's val­u­a­tion sur­plus-the ex­cess amount avail­able for dis­tri­bu­tion to share­hold­ers and cus­tomers hold­ing a with-prof­its pol­icy, a con­tract that en­ti­tles them to a share in the profit of an in­sur­ance com­pany.

Af­ter pro­vid­ing for present and fu­ture li­a­bil­i­ties stem­ming from ma­tu­rity and death claims, the profit is dis­trib­uted among the with-prof­its pol­i­cy­hold­ers in the form of bonus or div­i­dends.

Since the govern­ment holds a 95% stake in LIC, the lower profit will also mean a lower div­i­dend for the govern­ment.

Since 1 April 2015, BSE's 30share bell­wether Sen­sex has fallen by around 12% to 24,659.23 on Tues­day, pulled down by in­vestor con­cerns over weak cor­po­rate earn­ings growth, the eco­nomic slow­down in China, the start of in­ter­est-rate hikes in the US and plung­ing com­mod­ity prices.

LIC, with at least 250 mil­lion pol­i­cy­hold­ers, around 300 mil­lion poli­cies in force and to­tal as­sets worth at least Rs.20 tril­lion, is the largest among 24 life in­sur­ers in the coun­try.

Ac­cord­ing to LIC's dis­clo­sures at the end of De­cem­ber, the state-owned in­surer's net pre­mium col­lec­tions stood at Rs.1.73 tril­lion, com­pared with Rs.1.56 tril­lion a year ear­lier. The in­surer's profit from sale and re­demp­tion of in­vest­ments (in­clud­ing eq­ui­ties) was down to Rs.11,880 crore as of the end of De­cem­ber, com­pared with Rs.16,700 crore a year ear­lier.

Losses from in­vest­ments in eq­ui­ties, fixed in­come pa­pers and other as­sets widened 27% to Rs.957.16 crore at the end of De­cem­ber from Rs.751.71 crore a year prior.

"LIC is a long-term in­vestor in the mar­ket. Ev­ery in­vest­ment de­ci­sion at LIC is taken as per the in­vest­ment depart­ment's ap­proval," said one of the two per­sons cited in the first in­stance.

"Tra­di­tion­ally, LIC buys stocks at mar­ket lows and sells stocks at mar­ket highs if there is a pos­si­bil­ity of mak­ing prof­its. The mar­ket has given more lows than highs over the past year, so the profit book­ing num­bers are low but the gross pur­chase of stocks is one of the high­est," said the first per­son.

A LIC spokesper­son did not re­spond to an e-mail seek­ing com­ment.

In equity mar­kets, LIC typ­i­cally acts as a con­trar­ian in­vestor. "Port­fo­lio churn­ing is a con­tin­u­ous process and de­pend­ing on avail­able op­por­tu­ni­ties, LIC books prof­its by churn­ing its equity port­fo­lio," the first per­son said.

Still, LIC is bet­ter off than other in­vestors and in­vest­ment man­agers even af­ter the es­ti­mated 40% profit de­cline from equity in­vest­ments this fis­cal year, said Sudip Bandy­opad­hyay, man­ag­ing di­rec­tor and chief ex­ec­u­tive of­fi­cer at Des­ti­money Se­cu­ri­ties Pvt. Ltd.

"Even with th­ese num­bers, LIC is most likely to have done bet­ter than other in­vestors in the mar­ket. LIC is struc­turally po­si­tioned bet­ter than other in­vestors since it is ca­pa­ble of in­vest­ing in stocks for a much longer term than oth­ers and is able to re­deem in­vest­ments at any time from its old long-term in­vest­ments, with­out mak­ing any loss, un­like any other con­ven­tional in­vestor or in­vest­ment man­ager," Bandy­opad­hyay said.

Ac­cord­ing to Bandy­opad­hyay, the mar­ket is in such a sit­u­a­tion that in­vestors should bet on the fun­da­men­tals of the stock rather than an in­dex or a sec­tor while in­vest­ing.

"This con­di­tion is likely to last for at least a year more. And this may be the right time for in­di­vid­u­als to buy stocks, mar­ket-linked or par­tic­i­pat­ing in­sur­ance poli­cies, since the re­turns are def­i­nitely go­ing to be very de­cent over a hori­zon of 5-10 years," Bandy­opad­hyay added.

Dur­ing the on­go­ing fi­nan­cial year, In­dian eq­ui­ties have logged more los­ing ses­sions than up­swings.

Ac­cord­ing to BSE, the mar­ket has recorded 121 los­ing ses­sions and 111 gain­ing days dur­ing the cur­rent fi­nan­cial year so far.

From its high­est level of 29,044.44 on 13 April 2015, the Sen­sex is cur­rently trad­ing 15.24% lower. On 11 Fe­bru­ary, the mar­ket closed at its low­est level in the cur­rent fis­cal year, with the Sen­sex at 22,951.83 points.

Newspapers in English

Newspapers from Pakistan

© PressReader. All rights reserved.