The Life Insurance Corporation has drawn a list of sectors to reinforce its presence in the equity market following a shift in its investment strategy.
According to banking sources, the insurance major has shifted its focus from government securities and bonds to equity to ward off the impact of rising interest rates.
Pharmaceuticals, steel and information technology-enabled services top LIC's investment chart for the current fiscal. LIC officials added that despite the hiccups in the banking sector, the insurer has earmarked 15 per cent of its total investment portfolio for equity for banks.
For the fiscal ended March 31, 2004, almost 12 per cent of the said portfolio was invested in banking. However, LIC has decided to maintain caution over the metals sector, including copper and aluminium.
Moreover, to hedge the risk emanating from market movements, it has written to the Insurance Regulatory and Development Authority for permission to foray into equity derivatives.
According to the officials, trading in futures and options will enable LIC to hedge the market risks appropriately. At present, LIC is allowed to hedge its interest rate risk through interest rate swaps.
However it has not been of much help as there is no active trading in the swaps.
For the current fiscal, the insurance major plans to invest around Rs 9,000-10,000 crore (Rs 90-100 billion) in the equity market. The interest in the equity market emanates from the fact that the insurance major is flush with funds but it is not getting any viable infrastructure project to invest.
The situation is also jittery in government securities market where sources said, the 10-year benchmark paper will go up to 6.75 per cent by the end of the October credit policy.
However, in its limited presence in the bonds market, it has been lapping up government securities of longer-term maturity at dirt cheap prices with interest rates falling.