LIC, India’s largest investment firm, has been a major beneficiary of the recent slump in the stock market. The state-run life insurance company used the opportunity to buy the stock last March when it faced a heavy correction. LIC reaped the benefits as the market rallied rapidly.
LIC’s started buying during stock market crashes during the 2008 recession. Until then, investment firms have been selling like normal retail investors during market downturns. Fund managers did not dare to invest when the market crashed as they had to save money to pay back the investors when the sales pressure increased. Retail investors generally follow the trend of buying and selling when the prices of shares fall. Fund managers were often forced to follow the same procedure as they had to hold sufficient cash.
At the same time, the intervention of the then Finance Minister P. Chidambaram in 2008 led to a reversal of the market’s slump and complaints that the government was doing nothing to support the market. At the behest of the government, LIC stepped in to buy lower quality shares from the market. It supported the market. LIC also bought when other investment firms sold in the market. Within a few months, LIC was reaping the benefits.
This marked the beginning of a new investment trend. Later, when the market slumped, other investors began to show interest in buying. Soon, it was seen that domestic investors buy whenever foreign investors sell.
LIC, which had bought a good number of stocks last March when the market fell, reaped huge benefits. LIC continued to buy shares during the April-June quarter. LIC’s stake in leading companies in the banking, auto, IT and pharma sectors rose significantly during the April-June quarter.
