Income Via Capital Gains Rises 53.6%

Industrial Credit and Investment Corporation Indias (ICICI) income on account of capital gains has grown by 53.6 per cent from Rs 70.4 crore in 1995-96 to Rs 107.5 crore in 1996-97.

The FI has also introduced the annuity concept for its investment portfolio.

This has been mainly on account of divestment of the illiquid portion of the investment portfolio of the financial institution.

However the market value of the investment portfolio of ICICI was lower at Rs 4,133 crore against the book value of Rs 5,523 crore, reflecting an unrealised loss of Rs 405 crore.

In the last financial year ICICI adopted an active portfolio management approach towards its equity portfolio.

 

In many cases ICICI sold its stake in closely held companies back to the promoters, says K V Kamath, managing director and chief executive officer, ICICI.

Not only were these negotiated deals were at a premium to the market rates, the realised capital gains were at least twice the unrealised gains reflected in the books. The sales realisations have been reinvested and will contribute an annuity of Rs 66 crore per annum. We timed our exits at the peak market levels in case of other stocks, Kamath said.

In 1995-96, 69 per cent of the capital gains was realised from the liquid portion of the investment portfolio.

In contrast in the last financial year only 52 per cent of the capital gains was realised from the liquid portion and 48 per cent was realised from the illiquid portion.

Kamath points out that too much should not be read into the depreciation of the investment portfolio and the unrealised loss of Rs 405 crore. His contention is that the unrealised capital gains of ICICI far outweigh these losses.

As an example, he said that at price earnings ratio of 12, the price of the share of ICICI Bank works out to Rs 42. This would translate into an unrealised gain of Rs 450 crore.