Life Insurance Corporation of India strengthens cash position, takes Rs 11,000 crore profit from share sales

Life Insurance Corp, the country’s biggest institutional investor, has turned contrarian, taking Rs 11,000-crore profit off the table from share sale this year at a time global funds have invested more than Rs 1.1 lakh crore.

The insurer is strengthening its cash position to bid for shares in government companies, where investor interest is tepid, said two persons familiar with the thinking. It has cut stake in companies such as engineering giant Larsen & Toubro and utility vehicle maker Mahindra & Mahindra, they said requesting anonymity.

“We have booked profits of Rs 11,000 crore in the year so far by selling about Rs 21,000 crore of equity,” said an official who did not want to be identified. Last fiscal, it earned Rs 9,000 crore profit from equity investments.

LIC has turned out to be the government’s ATM whenever it fell short of funds and other investors turned their back on it. Last fiscal, it bailed out the sale of Oil & Natural Gas Corp ( ONGC) by buying nearly all of the Rs 12,000-crore issue.

The state-run insurer also stepped in for the cash-starved government to capitalise state-run banks such as Punjab National Bank and Syndicate Bank by investing Rs 8,000 crore. It also bought Rs 2,000 crore worth of bonds sold by struggling national carrier Air India.

This year already, it has bailed out the stake sale of Hindustan Copper and miner NMDC by lapping up more than a quarter of the shares on offer.

NTPC is also set to raise Rs 15,000 crore for the government, which is targetting Rs 30,000 crore from such stake sale this fiscal.

To suit the government’s needs, rules were amended to allow LIC to own as much as 30 per cent in a company while its rivals can’t breach the 10 per cent limit.

But the Insurance behemoth, which controls four-fifths of the industry, has been profitable since its regular flow of premium revenue helps it buy even during a bear market. A lot of the stocks it sold were bought at throwaway prices in 2008-09. Even the benchmark indices have more than doubled since then.

“LIC has been buying for a long time since the markets were in a desperate situation in 2011,” said Deven Choksey, chairman of KR Choksey Share and Securities. “Selling at a time FIIs are putting money is a healthy practice as they are averaging out their profit. It is also justified as they are part-selling and not exiting any particular stock.”

Even as global investors are flocking to Indian markets, expecting the government to accelerate reforms that could boost corporate earnings, domestic investors have been averse in buying equities. Insurers, mutual funds and banks have sold shares worth Rs 52,028 crore this year.

The portion reserved for retail and wealthy individuals in the Rs 4,500-crore initial public offering of Bharti Infratel went unsubscribed, illustrating the lack of investor interest.

http://economictimes.indiatimes.com/personal-finance/insurance/insurance-news/life-insurance-corp-strengthens-cash-position-takes-rs-11000-crore-profit-from-share-sales/articleshow/17642550.cms