LIC to buy $27 bln debt in FY09

By Saikat Chatterjee and Kaustav Roy

MUMBAI (Reuters) - Life Insurance Corp (LIC) aims to buy up to 1.15 trillion rupees ($27 billion) of bonds in the fiscal year to March 2009, its managing director said, nearly as much as the government's annual borrowing.

State-owned LIC is India's biggest investor in bonds and one of the leading buyers of stocks, with total assets of $175 billion under management.

Managing Director Thomas Mathew told Reuters in an interview he expected stagnant profits from LIC's equity investment because of weak stock markets and growing risk aversion among foreign funds, but would be more than compensated by earnings from bonds.

"Our total investment income would go up this year as we are buying more of debt, which is giving reasonably good returns now," he said late on Wednesday.

LIC plans to buy 450 billion rupees of stocks in 2008/09, compared with 340 billion rupees in 2007/08, and 1.1 trillion to 1.15 trillion rupees of bonds, up 10-15 percent, he said.

"Ten-year yields at around 8.3 percent are good levels to enter and they are likely to remain around these levels for some time," Mathew said.

The 10-year benchmark yield rose 15 basis points last week after a key lending rate increase by the central bank and has gained nearly a percentage point since late January.

The 30-share BSE index has fallen about a quarter this year as foreign funds dumped shares worth $5.7 billion. In 2007, the benchmark had risen 47 percent on the back of a record $17.4 billion foreign portfolio inflow.