The Life Insurance Corporation, or LIC, has been a regular investor in the capital markets. S Sarker, Executive Director of Investments at LIC, sees good growth potential in the realty sector in the future.
 
He further adds that he sees a net investment of Rs 14,000-15,000 crore in equities during FY08. As far as the amount of investments was concerned, he said, LIC was going to invest about 8-10% of its asset under managements, or AUMs, in equities in the current year.

He likes sectors such as engineering, cap goods, IT, telecom and pharma. And for the pharma sector he puts a long-term view. He asks investors to be more stock-specific than sector-specific. Sarker said that the ULIP investment pattern was determined as per the specifications of the investors.

Excerpts from CNBC-TV18's exclusive interview with S Sarker:

Q: What is the gut feeling at this point of time in your treasury? Do you sense that this market is likely to touch new highs sooner?

A: LIC is a long-term investor; we take a medium to long-term view always. We are always bullish about the medium and long-term growth prospects of the Indian economy. The same is also the case with the equity markets, which are also a reflector of the growth that takes place in the economy.

Q: Normally, you have about 10% of your investable pool in equities. What is the kind of money you are expecting to be available for the equity markets from LIC this year?

A: It is about 8-10% and the amount varies from year-to-year in a traditional life insurance area. As you know, in unit-linked products, or ULIPs, the investment pattern is determined by the investor. If the investor chooses to have more equity allocations, there are options available; we need to make investments as per the investors preference.

Q: We understand that you have put in about Rs 25,000 crore into equities in the FY07. What is your ballpark estimate for the FY08 and how much of it is perhaps already invested?

A: That was a gross figure for the previous year and obviously there were sales also. The net was much lower at about maybe Rs 12,000-13,000 crore. In the coming year, the net figure would be around Rs 14,000-15,000 crore.

Q: What are the sectors that you are essentially looking at channelising this 8-10% of your investments into as far as the equity markets are concerned?

A: We follow both a mix of top-down and bottom-up approach. We are rather more stock-specific than sector-specific; but having said that obviously one has to really keep a track of the sectors that are growing or likely to grow.

Q: In terms of breaking up the portfolio between midcaps and largecaps how do you de-market the investment?

A:  We are predominantly in the frontline stocks and the exposure in small caps is very negligible. In midcaps too, we have very little exposure. The bulk of the exposure is in the frontline stocks.

Q: You were telling us about sectors; if you had to look at a top down what would be the sectors at this point of time that attract you?

A: Certain sectors are very obvious like engineering, capital goods, telecom and IT sector. We have a little longer horizon on pharma sector, where a lot of drugs are going off patents.

Q: I noticed you are not saying realty at all. I agree realty is at the moment not in the frontline space. So, how does LIC stand on the realty stocks, especially the big one that is now having an IPO?

A: I would not like to make any stocks-specific comment. However, the Indian realty scene also has got a long-term bright prospect with so much of imbalance between demand and supply. The aspirations of people too are going up; they are asking for good quality dwelling units. As we know a little better about the residential area and residential realty housing, I think there is a good growth potential in that.

Q: Are you looking at a sharp spike in bond yields in the near term?

A: Perhaps a sharp spike may not be there, as we are already seeing some increases in the yields and from here onwards, there could be some more increase. A further hike would depend on both, the global as well as domestic sectors. Going forward, till the RBI policy, unless there are some mid-period announcements, we do not expect any sharp spikes. But some increases can be expected.

Q: Are you factoring in a rate hike at all from the RBI in the July policy?

A: It is very difficult to guess that. The rate hike will be determined by how the environment and various other factors, which decide the policy rates, shape up around the time of the decision. It is still too long away to say what the apex bank will do; suddenly we are hearing some other voices in the US, which say that the Fed is not likely to cut interest rates, which all the people were unanimous about earlier. That brings in a different dimension.