Saddled with several non-performing, low market capitalisation companies in its equity portfolio, Life Insurance Corporation of India (LIC) seems to be slowly getting rid of them ahead of its planned initial public offering (IPO) that may hit the market sometime next calendar year. In fact, LIC — the single largest investor in India markets — has been raising its holding in bigger and better known companies having high market capitalisations.
An analysis of data sourced from Prime Infobase shows that over the last year, LIC brought down its holding in 33 companies to either zero or to less than 1 per cent.
A closer look at the companies shows that 13 of them had market cap of less than Rs 1,000 crore and 22 had market cap of less than Rs 5,000 crore. There were four companies in the list which had market capitalisation of less than Rs 100 crore.
On the other hand, the insurer seemed to be investing money in bigger companies. While it made fresh investments or raised its holding above 1 per cent in 28 companies between April 2019 and March 2020, 16 of these companies had market cap of over Rs 10,000 crore and of these, nine had market cap of more than Rs 30,000 crore.
Only three companies out of the 28 had market cap of below Rs 1,000 crore, of which only 1 had a market cap of less than Rs 100 crore.
So, on a net basis, while LIC reduced its holding in 13 companies having market cap of less than Rs 1,000 crore, it picked up stake or raised its holding in only three companies that had market cap of Rs 1,000 crore.
The trend is even more prominent in the quarter ended March 2020. During the quarter, LIC reduced its holding in 7 companies to either nil or less than 1 per cent. The list included Premier Limited, Hexa Tradex and Welspun Investments and Commercials Ltd. All three companies had market cap of under Rs 100 crore as on June 29, 2020.
While Hexa Tradex had nil income over last three years, Premier has reported losses for the last five years and Welspun Investments and Commercials had revenue and profit of less than Rs 2 crore and 1 crore, respectively, in each of the last five years.
During the quarter, LIC also reduced its holding significantly in Yes Bank (from 8.06 per cent to 1.64 per cent) and in Dredging Corporation of India (from 5.61 per cent to 1.79 per cent).
On the other hand, it either made fresh investments or raised its holding above 1 per cent in 14 companies, including HCL Technologies, Tata Consumer Products, Shree Cement, IndusInd Bank among others. In fact, nine of these 14 companies, where LIC invested in Q4FY20, had market capitalisation above Rs 10,000 crore.
Besides these, LIC also significantly increased its holding in Rites Ltd (from 5.45 per cent to 7.83 per cent) and in Power Grid Corporation of India (from 4.71 per cent to 6.41 per cent).
Primary market experts say that the quality of assets and investments matter a lot for insurance companies. “Premium collection and investment portfolio are the two most critical metrics for insurance companies including the profitability of course. So how much they have invested and where matters a lot,” said Pranav Haldea, MD, Prime Database.
Kick-starting the process of LIC disinvestment, the Finance Ministry on June 19, invited bids from consulting firms, investment bankers, and financial institutions for advising it on the proposed IPO.
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