He is India's biggest fund manager with over Rs 8,00,000 crore (Rs 8000 billion) of assets under management. Though there has been an erosion of 20-30 per cent in its equity portfolio since January when the Sensex touched its peak, Life Insurance Corporation managing director, Thomas Mathew T tells Anirudh Laskar that the public sector company bought 25 per cent more in the stock markets during the second quarter as valuations were attractive.

Is there a change in LIC's [Get Quote] investment strategy due to the volatility in the stock markets?

The LIC investment strategy is very clear. It is based on our investment policy, Irda regulations, Insurance Act and the LIC Act. According to the guidelines, 50 per cent of the total investible funds must be in government securities - 25 per cent should be in central government securities, and up to 50 per cent in both state and central government securities.

Then, 15 per cent of the corpus has to be invested in infrastructure. And out of the balance 35 per cent, we can buy equities, sanction corporate loans or invest in a venture fund. We have three different funds - the life fund, there is a unit linked insurance plan (Ulip) fund, and the pension and group scheme (P&GS) fund. The investment rules are different for different funds, and what I have just said is applicable for the life fund.

For the Ulips business, the investment strategy depends on the customer's choice, and the amount to be invested in equities or debt is also decided by the customer. As far as the P&GS fund is concerned, we are required to put 40 per cent in approved funds, and 60 per cent in non-approved funds.

Equity market fluctuations do not change LIC's investment strategies much. Our investments are only in top Nifty stocks. We have a large professional equity research team that guides us on investment with a long term perspective. We are not speculators and we do not indulge in intra-day trading.

We invest with a perspective of 10-20 years. We have the responsibility to keep the policyholders' premia safe and give them returns in the long term. Nevertheless, in these markets when the prices have gone down, it is a golden opportunity to buy good shares, even in the top Nifty stocks.

What was the value of your investment in January and how much is it now?

The market has come down by about 50 per cent from its peak in January, but the value of our investments have come down by only 20-30 per cent. At the end of March 2008, the book value of our total investment in equities was about

Rs 1,05,000 crore (Rs 1050 billion), of which the marked-to-market (MTM) portion would be about Rs 1,90,000 crore (1900 billion). The value on an MTM basis has possibly come down to Rs 1,50,000-1,60,000 crore, (Rs including the additions in investment that we have made during the current financial year.

During the financial year (so far), we have invested about Rs 20,000 crore (Rs 2000 billion) in equities, and up to March 2009, we have plans to invest another Rs 18,000 crore.

Did LIC take advantage of the fact that a lot of stocks are trading below their 'fair' value?

As the stocks were trading at attractive levels during the July-September, LIC invested 25 per cent more in buying equities as compared to the same period last year. But we always keep our investments within the Irda regulations.

But you hold over 10 per cent in many companies, which has been prohibited by Irda now.

We have discussed the issue with Irda. But we cannot offload our extra stakes immediately. If we trim our stake in haste, the market might react negatively. So, we have expressed our concern and we are sure that Irda will take a positive view on it.

Have Ulip sales been affected because of the equity market downturn?

Last year, LIC had seen substantial sales coming in from Ulips. As a life insurance company, we are aware that for long term viability, Ulips are not the answer. We have to go into the conventional non-Ulip products. That's why, this year we have made a conscious effort to decrease the Ulip content. Last year, about 20 per cent of our premium was generated from non-Ulip plans.

This year, we aim to increase it to 30-35 per cent. At the end of September, we managed to bring down the proportion of Ulips to 73 per cent. This year, customer preference for non-Ulip products has been higher than last year. It may be due to the market volatility and the bearish sentiments in the equity markets. We sold about 12 million policies during April-September with Ulips contributing about 50 per cent.

What about your debt investment?

Our major investment is in debt. Our total asset base is about Rs 8,04,000 crore. The MTM value of our equity investments is about Rs 1,60,000 crore, while the remaining sum is parked in debt. The debt market has become very attractive due to the equity market downturn. We do not finance any project or company loan unless it is fully secured and highly rated.

When you exclude LIC's investments in government papers and equity, only 5 per cent is invested in corporate loans, fixed income funds, and mutual funds.
Most of our investment is going towards government-funded projects and government-owned companies. So, the amount of non-performing assets (NPA) has been negligible. Since our investments are generally meant for the long term, we need not worry about NPAs.

How will the financial crisis affect LIC?

When you look at the fundamentals of the Indian companies in the long term, they are good. Corporate tax collections have been good, which means companies are making profits. GDP growth continues to be above 7 per cent, and only China is growing faster. 

The situation that we are going through at present is the result of global tremors, and may remain this way for another six months to a year, but in the long term we will see the growth remaining intact. We need a little more confidence in the market, and the Reserve Bank of India [Get Quote] injected adequate liquidity, whenever it was required.

For LIC, the situation has turned out to be a boon, as the public is now more biased towards public sector entities like us instead of investing in private companies. As more money comes into the system, we are confident that our business will get a further boost.