The financial sector has a pride of place in the equity portfolio of government-owned Life Insurance Corporation of India (LIC), with 53 of its 309 large picks from the sector.
A Business Standard analysis of data from NSEinfobase.com showed with significant holdings in 33 banks, both private and public sector, LIC’s financial sector investments are a little over Rs 1 lakh crore or 25.7 per cent of its total equity assets of Rs 4.14 lakh crore as of March.
Apart from banks, LIC also has significant stakes in 20 other financial sector firms such as housing finance firms, term lenders and investment firms.
The exposure, at par with banks and financials’ weightage in the BSE 500 index at 25.4 per cent, is a slight increase over the previous year. The data is the aggregate of LIC's stake in companies in which it holds more than one per cent. As companies don't have to disclose the names of investors holding less than one per cent, LIC's holdings in companies below this limit isn't available in the public domain. (BIG BETS)
At the end of March 2014, the financial sector accounted for 25.25 per cent. The numbers assume significance as LIC has been playing a key role in capitalising of public sector banks. During financial year 2014-15, it bought additional shares of UCO Bank, Union Bank, Canara Bank, Bank of India and Central Bank of India.
This was offset by profit booking in State Bank of India, HDFC Bank and Axis Bank, keeping the overall weightage around 25 per cent. Over five years, the insurer’s financial sector exposure has remained in a tight range, between a low of 23.3 per cent in March 2010 and a high of 27.7 per cent two years later. However, the number of financial companies has inched up gradually from 43 in 2010 to 53 now.
While regulators such as the Reserve Bank of India have expressed concern over the concentration risk caused by the institution’s increasing exposure to the financial sector as banks’ demand for capital increase, reports quoting LIC officials suggest the institution’s bets are based on long-term investment goals and prudential norms. An e-mail seeking comments on the investment philosophy and short-term strategies of LIC, sent to its spokesperson on Tuesday, did not elicit a response.
Oil (13.54 per cent), despite a recent fall in weightage from a high of 17.3 per cent two years earlier, cigarettes (9.08 per cent), automobiles (6.68 per cent) and project contracting (6.57 per cent) are the other major sectors preferred by LIC, with allocations between six and 14 per cent. Many of its top sectors are driven by concentrated bets. For example, ITC is its only bet in the tobacco sector; huge holdings in Reliance and Larsen & Toubro dominate the exposure to their respective sectors.
Though spread over 57 sectors, close to 90 per cent of its investments are in the top dozen sectors. In terms of number of stocks, pharmaceuticals and textiles came second with 17 each. Real estate came next with 14 companies, followed by cement & construction (13), information technology (IT, 12) and power (11). While textiles and real estate did not account for much in terms of value, others made it to the top 10 preferred sectors.
IT, mining and minerals, power, pharma and construction complete the top 10 sectors, which together account for 84.25 per cent. The remaining portfolio was spread over 172 companies, across 47 sectors.
Mining has become a recent favourite. Last year, LIC bought a big chunk of Coal India, which boosted its weight in the sector to 5.59 per cent from 2.86 per cent the previous year. As the insurer has been a regular participant in the government disinvestment programme, the number of public sector units (PSUs) in its portfolio has gone up from 36 in June 2009, when the programme restarted, to 56 today. PSUs account for 31 per cent of the LIC equity portfolio, up from 24 per cent six years ago. Some of the significant PSU additions to the portfolio over the past five years include NTPC, NMDC, REC, Power Finance Corp, Oil India, MMTC and NHPC.
In terms of total number of stocks where it holds one per cent or more, LIC hit a high of 321 at the end of FY13, up from 299 in FY10. It has since cut this to 309.