Investments by LIC in state-owned units see an erosion of Rs 5,170 cr in market value
| Investments by
Life Insurance Corporation of India to bail out some of the government’s
bigticket share sale in state-owned enterprises have lost Rs5,170
crore, or almost a quarter, in value. The country’s largest financial
institution had to pick up close to 70% of the government’s combined
equity offerings in NTPCBSE -0.47 %, NMDCBSE 0.18 % and ONGCBSE 0.91 %
because foreign institutional investors as well as local private sector
fund houses were put off by the high floor price | |
 |
Since
LIC is a long-term investor that largely dips into funds of traditional
insurance policies to subscribe to stocks sold in government’s
divestment programme, it is spared of mark-to-market (or MTM) accounting
losses arising out of decline in investment value. "Mark-to-market
changes are merely notional, reflecting the appreciation or depreciation
of value, and not actual profit or loss," said an LIC official.
Justifying the investments, he said, "Public sector undertakings are
pioneer and market leaders in their respective sectors and many of them
have strong fundamentals, huge potential for market share and high
intrinsic valuations."
LIC, however, has to take MTM hit from
dip in stock prices whenever it buys shares from funds collected by
selling unit linked insurance policies. It is understood that due to the
demand and pricing of PSU stocks, LIC uses the traditional fund to
subscribe to selloff offers. The government had raisedRs30,560 crore
between February 2010 and March 2012 from these three divestments. The
market value of these investments has slipped even though the BSE Sensex
gained 21% since February 2010 and 10% since March 2012. About a month
ago, LIC also bought a substantial part of theRs807-crore divestment of
Hindustan CopperBSE -0.03 % at Rs156 a share.
The stock is now
trading at less than Rs153. "As long as LIC meets the prudential norms,
the regulator has no issue. It cannot comment on individual investment
decision of any company," said IRDA chairman J Hari Narayan. Investments
by LIC in state-owned units see an erosion of Rs 5,170 cr in market
value Refusing to comment on specific investments, the official said:
"LIC tends to manage its portfolio as a whole and generate good returns.
For the period ended September 30, 2012, its equity portfolio has shown
fantastic appreciation on mark-tomarket basis."
But, it’s an
unrealised valuation of investment and depends upon indices and
parameters such as GDP growth predictions, published data on IIP and
inflation, exchange rate, crude price, infrastructure spending, FII
inflow and national and global scenario, he said, adding that the
corporation has booked profits of more than Rs2,900 crore in the last
three financial years from PSU stocks. "LIC is the only white
knight-....You can technically call such share sale disinvestment, but
it is not. Out of LIC’s multiple objectives, one of them seems to be
helping the government reduce deficit," said Dhirendra Kumar, founder
and chief executive of the fund tracker, Value Research.
"In
India, the market capitalization of top 1,800 companies is around Rs65
lakh crore and PSU companies account for more than 25% of the total
market capitalisation. Therefore one cannot construct portfolio without
PSU stocks. In the past, PSU stocks like Oil IndiaBSE -0.08 %, HPCLBSE
0.02 %, BPCLBSE 2.08 % and ONGC have given fantastic returns on
investment over a period," said the LIC official.
source: ET
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