LIC remains wary of realty and telecom stocks: S Bandhopadhyay, equity investment chief

22-Aug-2011
Source : The Economic Times

India’s biggest domestic institutional investor, Life Insurance Corporation of India (LIC), is bullish on oil and cement sector stocks which, it says, have the potential to outperform the benchmark indices. The country’s biggest insurer, which has more than 12 lakh crore assets under management, will stay away from realty stocks, said S Bandhopadhyay, LIC’s chief investment-equity officer.
The public sector behemoth will predominantly invest in companies with good corporate governance. "There are corporate governance issues in most of the companies. We are looking to invest in companies with good corporate governance," he said. LIC had pared its investment in Satyam Computer after the founder confessed of fraud. It later increased its stake and now holds 3.18% in the company.
Although LIC does not have any sector-specific preference, it has decided to stay away from realty. "Apart from realty, we are investing in all sectors. We have stayed away from realty for last two years," said Badhopadhyay.
On the banking sector, he said that pressure on Indian lenders will remain as the Reserve Bank of India continues with monetary tightening to fight stubborn price pressures. "Banks will be under pressure because of rate hikes. But if we see specific banks at attractive rates, we buy," he said. LIC has holdings in most banks and has significant stake in ICICI Bank, Axis Bank, Syndicate Bank.
The corporation is cautious about the telecom sector hit by the second generation spectrum allocation scam. "There are very few stocks looking good and there is so much uncertainty till the 2G controversies go on. Bharti Airtel is one stock, which has consistently outperformed," he said.
LIC’s role in saving public issues is often talked about but the corporation has taken a decision to stay away from the primary market for some time. "Most of time even if demand is 40-45 times, the actual allocation is very low," he said.
LIC is sitting on low cash levels of 3-4% compared with other private sector insurance companies, though the total asset under management of the corporation has gone up.
"I will sell only when I get the right valuation. It is time for some profit-booking also," Badhopadhyay said. "We are on both sides of the market."
LIC is bullish on fixed-income instruments. "Mostly money is going in corporate bonds, CDs," he said. Insurers are required to invest 50% of funds from traditional plans to government securities, 35% in approved securities and 15% in infrastructure. In infrastructure, insurers can only invest in projects with AA rating. Since there are very few AA-rated infrastructure projects insurers fail to touch the infrastructure ceiling.