LIC equity kitty takes Rs 57,000 crore hit in Q2FY20 amid market weakness

Selling pressure on frontline stocks and weakness in the broader markets have weighed on the equity portfolio of Life Insurance Corporation (LIC) to the tune of Rs 57,000 crore in the current quarter. The insurer is known for making large equity investments, and has substantial holdings in many companies.

As of the June quarter, the value of insurer’s holdings in listed companies stood at Rs 5.43 trillion. At current prices, the value of these holdings stands at Rs 4.86 trillion, translating into a mark-to-market hit of more than Rs 57,000 crore or 10.5 per cent. The analysis takes into account 336 listed companies, where LIC’s stake has been disclosed for the June quarter.

So far in this quarter, the market benchmark Sensex — which consists of 30 blue-chip stocks — has corrected 5.1 per cent. Meanwhile, broader market indices — BSE Midcap and BSE Smallcap — have corrected 7.7 per cent and 8.6 per cent, respectively.

The market sell-off was aggravated with foreign institutional investors (FIIs) selling Rs 31,870 crore worth of equities since the tax surcharge announcement in July. LIC is known for its ability to hold onto its investments for much longer periods and also for raising the bets when markets are weak.

Among the blue-chip names, LIC saw the largest erosion in ITC in the current quarter, where the value of its holdings has declined by Rs 6,520 crore since June-end. The stock has been under pressure due to weak consumption demand in the fast-moving consumer goods (FMCG) space and the higher taxation impact on its cigarette business. The other blue-chip names where LIC has seen among the largest erosion, include State Bank of India (value of holdings is down by Rs 6,033 crore), ONGC (Rs 4,997 crore), Larsen & Toubro (Rs 4,252 crore) and Coal India (Rs 3,778 crore). 

Overall, the value of insurer’s holdings has shrunk in 275 companies, which represents 81 per cent of companies where LIC had exposure as of June quarter. The insurer’s holdings may have changed in the current quarter.

Among sectors, banking investments have been the biggest drags, with value of such holdings falling by Rs 12,049 crore in current quarter. In terms of market-cap, LIC has seen Rs 47,702 crore of aggregate hit in 60 of its large-cap investments, while it has seen Rs 9,670 crore of hit in its 276 mid- and small-cap investments.

According to market watchers, LIC’s large holdings in state-owned companies have been one of the major contributors to the mark-to-market losses on the insurer’s portfolio.

“PSU companies have been among biggest underperformers. Apart from the bluechips, sell-off in PSU banks and non-banking PSUs in mid-cap space must have put pressure on LIC’s investments,” said G Chokkalingam, founder of Equinomics.

The BSE PSU Index is down 15 per cent during the quarter.

Analysts say that the PSU names have also been under pressure due to constant selling by the government to raise funds through its divestment drive.

According to the data, value of LIC’s stake in PSU names has declined by Rs 22,676 crore in the current quarter, which is 40 per cent of the overall erosion.

Analysts say PSU bank mergers are also a cause of concern for the life insurer’s portfolio.

“In the near-term, as these banks go through the merger process, a significant proportion of management and employee bandwidth is likely to get consumed and diverted away from growth and resolutions. There could be a drag on overall environment (these banks form 23 per cent of overall credit of the banking system),” said analysts at JM Financial in a note.

LIC holds stake in all the four PSU banks that have been shortlisted as banks that would be absorbing smaller banks as part of the mergers.

LIC held 7.3 per cent stake in Punjab National Bank as of June quarter. It held 9.2 per cent stake in Canara Bank, 6.4 per cent stake in Union Bank and 1.85 per cent stake in Indian Bank.