LIC to boost investment 15%

MUMBAI: Life Insurance Corp of India, the nation's biggest insurer, plans to raise investment by as much as 15 per cent this fiscal year to keep pace with premium growth, the company's managing director said. The company will put as much as Rs 1.15 trillion ($28 billion) in stocks and bonds in the year that began April 1, D K Mehrotra said. The Mumbai-based insurer's investments currently exceed Rs 6 trillion, he said. ``We will continue to focus on high-yielding assets such as corporate bonds and long-term government debt,'' Mehrotra said in an interview. ``We expect corporate bonds to remain attractive in the current financial year as well.'' The added investment by Life Insurance Corp, which last fiscal year bought government debt equal to more than a quarter of federal borrowings, may help India meet rising demand for funds to fuel the second-fastest growth rate among major economies globally. India estimates it needs as much as $320 billion by 2012 to build roads, ports and power plants. Life Insurance Corp. slowed government debt purchases in the year through March to focus on higher-yielding corporate bonds. Investment in corporate debt grew ``many times'' to almost Rs 100 billion, V K Kukreja, head of investments, said without elaborating. The company purchased Rs 430 billion of federal and state government debt in the past fiscal year, which ended March 31, lower than in the previous year, according to Mehrotra. It holds Rs 2.75 trillion of federal debt and Rs 650 billion of state government debt. India's government sold Rs 1.52 trillion of bonds in the past fiscal year.

Rising Yield

Life Insurance Corp, formed in 1956, was India's only life insurer until 2000, when the nation began allowing private and overseas investment in the industry. India now has 16 life insurers, according to the country's Insurance Regulatory & Development Authority. Premium income at Life Insurance Corp. more than doubled in the year ended March 31, giving it a 74.2 per cent share of the country's market for life coverage. Rising interest rates in India helped increase the average yield on the company's debt investments last year, Mehrotra said. India's central bank has raised borrowing costs nine times since October 2004 to curb inflation stoked by economic growth that reached 9.4 per cent last fiscal year. It boosted the benchmark rate to a five-year high of 7.75 per cent on March 30.

Equity Investments

``We expect debt yields to remain attractive,'' Mehrotra said. ``Interest rates should remain high as long as the central bank maintains its current monetary stance, which aims mainly at moderating inflation.'' Benchmark 10-year government bond yields have climbed 55 basis points this year. A basis point is 0.01 percentage point. Corporate bonds yield relatively higher, making them more attractive. The yield on the benchmark 10-year corporate bond is 10.2 perc ent today, compared with 8.21 per cent on the comparable government note. Life Insurance Corp. will keep the proportion of equity investments at 10 per cent, Mehrotra said. ``Also, we put around 15 per cent of our funds in the infrastructure sector each year, buying bonds and extending loans. We will do the same this year too.'' Last month, the company bought 13 million shares of Maruti Udyog Ltd, India's biggest carmaker, when the government sold its stake. It now owns 14.8 per cent of the company and is the second-biggest shareholder.

Source: Economic Times