With LIC’s investments being tracked more intensively after Adani Group stocks’ meltdown after a US short-seller flagged corporate governance issues, the government has asked the state-run insurer to appoint a chief investment officer (CIO) to rework its investment strategy, if required, and maximise returns. The government wants the CIO to be from the private sector.
LIC’s asset under management (AUM) is worth about Rs 41.6 trillion as on September 30, 2022, higher than the Indian mutual fund industry’s total AUM of Rs 39.6 trillion by end-January 2023.
Over the years, the returns generated by the mutual fund industry were much higher than by LIC, which has been giving an annual dividend of a paltry Rs 2,600 crore or thereabouts to the government.
A section of the government was understood to not be happy that while domestic mutual funds largely stayed away from investing in Adani Group stocks, LIC invested over `30,000 crore in the conglomerate.
LIC had said in a statement on January 30 that its total purchase value of equity, purchased over the last many years, under all the Adani Group companies was Rs 30,127 crore (0.86% of its AUM) and the market value for the same as at close of market hours on January 27th, 2023 was Rs 56,142 crore. However, this gain has been almost lost thereafter.
While LIC roped in a former Reliance Nippon Life Insurance executive as its chief financial officer (CFO) in March last year ahead of its initial public offer (IPO), it is now being nudged to hire a CIO from the private sector to align the 66-year-old insurer with market standards in all aspects of its investment operation. Currently, LIC’s investment is looked after by an executive director.
Meanwhile, to make the handover of the organisation to a CEO & managing director smooth, the government will likely either extend the tenure of current chairman MR Kumar, or appoint managing director Siddhartha Mohanty as new chairman till March next year.
While Kumar’s current extended tenure ends in mid-March, Mohanty is scheduled to retire on June 30 this year.
The Finance Act, 2021, which came into effect on April 1 of that year, amended the LIC Act, 1956 to pave the way for the abolition of the post of executive chairman in three years and transition to CEO and MD structure, latest by March 2024.
Unlike the past practices of drawing a chairperson from the LIC cadre, the CEO & MD post will be open for talent from private sector aspirants, as the insurance behemoth aims to check the decline in its life insurance market share and improve returns to the shareholders and the stock’s performance.
Dividends by LIC could jump this year as LIC reported a net profit of about Rs 16,000 crore in Q2FY23, as it chose to transfer a surplus of Rs 14,300 crore from its non-par fund to shareholders’ fund and another Rs 6,334 crore in Q3FY23. It may announce dividends soon for FY23 to be paid to shareholders before March 31.
The LIC held about 64% of the market share of the sector’s total insurance premiums in FY22 after it gradually ceded ground to private players that entered the sector from 2000 post-liberalisation.
Post the listing of LIC in May this year, the stock has taken a beating by falling nearly 33% and it is now trading at `590.95 or 37% lower than the IPO issue price of `949/share, partly due to recent stock market volatility.