LIC EARMARKS $27B FOR BONDS

Mumbai: The Life Insurance Corp (LIC) aims to buy upto Rs 1.15 lakh crore ($27 billion) of bonds in this fiscal year nearly as much as the government’s annual borrowing, said.

Managing director, Mr Thomas Mathew, said in an interview that he expected stagnant profits from LIC’s equity investment because of weak stock markets and growing risk aversion among foreign funds, but would be more than compensated by earnings from bonds.

"Our total investment income would go up this year as we are buying more of debt, which is giving reasonably good returns now," he said on Wednesday. LIC plans to buy Rs 45,000 crore of stocks in 2008-09, compared with Rs 34,000 crore in 2007-08, and Rs 1.10 lakh crore to Rs 1.15 lakh crore of bonds, up 10 to 15 per cent, he said.

"Ten-year yields at around 8.3 per cent are good levels to enter and they are likely to remain around these levels for some time," Mr Mathew said. The 10-year benchmark yield rose 15 basis points last week after a key lending rate increase by the central bank and has gained nearly a percentage point since late January.

The 30-share BSE index has fallen about a quarter this year as foreign funds dumped shares worth $5.7 billion. In 2007, the benchmark had risen 47 per cent on the back of a record $17.4 billion foreign portfolio inflow.

Despite putting in more money in stocks this year, returns from equities are likely to remain around 97,000 billion rupees this year, similar to 2007-08, he said.
He expected the BSE index to reach 17,000-18,000 points by the end of March 2009, compared with 15,644 a year earlier. The benchmark closed down 2.2 percent on Thursday at 15,088.

Source: Reuters, Asian Age, Deccan Chronicle