FE Editorial : Insuring LIC
The Irda chief is absolutely right in saying investments in a company shouldn’t cross 10% of the share capital. Given the high degree of risk associated with equities—today’s dream stock can quickly become tomorrow’s nightmare—the more diversified the portfolio the better. Already, the universe of stocks that investors in India can buy into, based on financial soundness and growth prospects, is relatively small. Moreover, not all these stocks are large and liquid—the depth of the Indian market can be gauged from the fact that there are fewer than 200 stocks with a market capitalisation of over R5,000 crore and just 114 stocks that command a market value of R10,000 crore or more. Owning a disproportionately high share of a company, in a volatile market, dominated by foreign institutional investors, can only make LIC more vulnerable. Even if one assumes that the companies invested in are of top quality, an exposure of more than 10% is risky.
The government can’t be using LIC to fund its budget deficit
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