LIC likely to buy more G-secs in current fiscal

State-owned Life Insurance Corporation of India (LIC) might buy more government securities (G-secs) in the current financial year if yields were attractive, said a senior company official.

India’s largest insurance firm has planned to invest Rs 62,000 crore in G-secs in FY10, as compared to Rs 56,000 crore in the previous year ended March 2009.

With fiscal deficit at a record high, the Centre is planning to borrow Rs 3,62,000 crore from the market and this has increased the supply of bonds, putting pressure on bond prices. Lower bond prices increases yield on G-secs, and this would benefit LIC as it would like to increase its fixed income for a longer duration instead of trading on these bonds to make short-term profits.

Moreover LIC is planning to increase its investment by 8 per cent to Rs 1,75,000 crore in fiscal 2009-10, as compared to Rs 1,62,000 crore in previous financial year. “Whether the market is up or down, there is an opportunity. We could do some good buys in the downturn last year also. Our investments are a long-term process,” Managing Director Thomas Mathew said.

Bulk of the increase would be channeled into equity and g-secs. LIC plans to invest around Rs 50,000 crore in the equity market in the current financial year as against Rs 40,800 crore in FY09. So far, LIC has already invested around Rs 8,000 crore in the equity market.

He said LIC’s frequency of purchases in the weekly gilt auctions will increase as the government is borrowing more. Since May 15, the government has been borrowing Rs 15,000 crore through the weekly gilt auctions, up from Rs 12,000 crore in the indicative calendar.”The frequency (of gilt buy in primary issuances) will be more, as it fits our requirements,” he said.