LIC to pare real estate exposure

Life Insurance Corporation of India is reducing its exposure to real estate stocks, taking a cue from the banking regulator, the Reserve Bank of India (RBI), which has warned of an asset bubble building up in the sector.
“We have taken a conscious decision to go slow on the real estate industry as we think at present the real estate stocks are overstretched,” Managing Director D K Malhotra said here today.
LIC is one of the biggest investers in the stock markets with its financial year 2008 investments expected to cross Rs 8,500 crore. It picks up stake in the initial public offers (IPOs) as an institutional investor and from the secondary market.
The corporation would have investible funds of as high as Rs 115,000 crore by this fiscal-end. Of this, the LIC would invest 8 per cent to 10 per cent in the equities alone after scooping out a separate corpus worth Rs 35,000 crore for the unit-linked insurance schemes.
Even in the past, Malhotra said the insurance giant was very selective about investing in real estate stocks. But following the RBI advice to the banks to increase risk weightage on the real estate sector, the LIC has become more selective in the real estate stock investments.
Malhotra clarified that they have not received any instructions as yet from the insurance regulator, the Insurance Regulator and Development Authority (Irda) about cutting down on investments in the realty sector.
Malhotra said like the global financial giants, Fidelity which insists on high corporate governance standards in the companies they invest, LIC would demanding similar higher corporate governance standards.
The LIC would be investing more in those companies which have good corporate governance records. “Our nominee directors have been told to be more vigilant on the corporate governance issues as better governed companies fetch higher valuations in the stock markets,” he added The Indian real estate sector is witnessing an unprecedented boom with real estate prices touching a record high.
Riding on the boom, many Indian real estate companies went public and its valuations shot up soon after the listing of the shares.
In fact, the Delhi-based real estate firm DLF has lined up a Rs 9,500 crore IPO which would open for subscription by next week.
Malhotra said the LIC has not taken a decision as yet on the investments to be made in the DLF IPO.
The real estate prices have doubled in the last two years and the stock prices of real estate companies are up by almost 80 per cent in the last one year.
A booming economy and higher salaries are creating a demand for new houses, offices and shopping malls.
But due to successive interest rates hikes, the real estate prices are now cooling down with some experts predicting a price correction in the next two quarters.

Source: Dev Chatterjee, (Business Standard)