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Monday, 3 December 2012

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 0.22 %, NMDCBSE 0.64 % and ONGCBSE 0.19 % 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 0.29 % 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 capitalisation 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 0.15 %, HPCLBSE 0.71 %, BPCLBSE 1.87 % and ONGC have given fantastic returns on investment over a period," said the LIC official.(ET)

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