Despite the fact that the Sensex has rallied to levels of 19,300 points, Life Insurance Corporation (LIC) is out of the money in several of its stakes in public sector companies and banks. The latest example of this is the state-owned insurer’s purchase of shares of Hindustan Copper at R156.56 apiece on November 23. LIC is believed to have picked up a large chunk of the R808-crore issue at the auction, but five sessions later, on Monday, the Hindustan Copper stock closed at R152.60. During this period, the Sensex rallied nearly 800 points or 4.3%.
Last month, the government allowed LIC to buy up to 30% of the equity of a company whereas the insurance regulator allows insurance firms to hold only up to 10%. The move will allow LIC to buy larger stakes in PSUs at a time when the government is looking to raise R30,000 crore through disinvestments. It’s not just Hindustan Copper or ONGC (of which LIC bought 40 crore shares at R304 earlier this year and which now trades at R262.55) on which the state-owned insurer is losing money. Several other public sector investments too have lost value.
For instance, although LIC has been adding to its purchases of IOC, BHEL and SAIL, the total value of its stakes in these firms, dropped 18% year-on-year to R7,558.50 crore at the end of September 2012. In this time, the Sensex gained 14.03% to 18,762.74 points. As on September 28, India’s largest life insurer had raised its stake to 2.86%, 6.8% and 4.93% in IOCL, BHEL and SAIL respectively. The IOCL stock fell by 19.3% to R250.55 by end-September while the prices of BHEL and SAIL came off by 24.6% and 18.7% from a year ago to R246.85 and R85.45 per share, respectively.
In the case of Punjab National Bank (PNB), the life insurer’s holding almost trebled to 14.15% end-September, 2012 from 4.78% last year. However, PNB’s market cap fell by 5.5% to R28,480 crore in that period, with the stock price stock price coming off 12% year-on-year to R839.70. In this time, the BSE Bankex rose 21%, with HDFC Bank gaining 35%.The current price of PNB is R783.05.
Moreover, on Monday, Bank of India closed at R280 per share whereas in September 2011 the price was R315.6. LIC has upped its stake in BoI over the over the past year or so to around 12% at the end of September. In Indian Overseas Bank (IOB), LIC holds 10.33% — the stock ended Monday’s session at R80.80 whereas last year, the stock was trading at levels of above R90. LIC has also picked up some 10% of Central Bank of India and while the stock now trades at R78.45, a year back it was quoting at levels of R100.
Meanwhile, LIC’s market share of premiums has fallen from 63.5% at the end of March 2012, to 59.6% at the end of October 2012. In October, individual premiums for LIC fell 12% y-o-y compared with an increase of 9.5% in September.
In mid-May this year, Moody’s Investors Service downgraded LIC’s foreign currency rating of to Baa3 from Baa2. Among reasons for the downgrade the rating agency pointed out was the significant exposure the insurer’s balance sheet had to domestic sovereign debt relative to its capitalisation.