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MUMBAI: The market rally that took the Sensex to an all-time high last week helped Life Insurance Corporation also to set a record. With a month left for the fiscal year to end, its profit from equity investments is already at an all-time high. But the inflated valuations that boosted profit had a flipside as well. New equity investments dropped, and this may affect its future performance.

The state-run insurer, the country’s largest domestic institutional investor with Rs 16 lakh crore of assets under management, booked profit of Rs 22,000 crore by selling equities up to February this financial year.

That easily tops the previous year’s Rs 21,257 crore. It is a good strategy by LIC, said Sudip Bandyopadhyay, president of Destimoney Securities. It happens by default and not by design. LIC saves the day whenever the market falls or there is a large PSU offer for sale. Whenever the market moves up, it benefits from it.

Since start of this fiscal year, the insurer has sold shares worth Rs 49,000 crore and invested Rs 40,000 crore, a senior LIC executive, who spoke on the condition of anonymity, said. It bought stocks worth Rs 53,373 crore last fiscal year, and worth Rs 33,205 crore the year before that.

The Bombay Stock Exchange’s Sensex topped the 30000 mark last week, building on a rally that started after the new BJPled government came to power in New Delhi in May. The index has gained 29% so far this financial year. The main drivers of the rally were foreign institutional investors, who have invested Rs 1.08 lakh crore so far this year.

Insurance companies are allowed to invest up to 35% of funds in equities and similar instruments. Of the rest, they need to invest a minimum 50% in government-approved securities, 15% in infrastructure.

LIC has bailed out several offerings by state-run entities. In the past year, it lapped up a substantial portion of shares put on sale by Oil &Natural Gas Corp and Coal India after the issues failed to garner enough demand. LIC also stepped in for the cash-starved government to capitalise public sector banks. It subscribed to a third of State Bank of India’s share offer.

This year, it increased its stake in companies such as Reliance Industries, Central Bank of India and ITC. New rules introduced by the Insurance Regulatory and Development Authority allow insurers such as LIC to own up to 30% of a company.

The insurance behemoth has seen regular flow of income through sale of new policies and is targeting Rs 35,000 crore in new business premium income this fiscal year.