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Life Insurance Corpor-ation is cutting investment in private sector stocks, to increase its stake in those of public sector undertakings (PSUs).
The effective stake in non-government listed companies has steadily declined to 3.9 per cent at the end of the December 2014 quarter from a high of 5.3 per cent in the June 2012 quarter and 4.6 per cent in December 2011. In this period, stake in listed central PSUs rose to seven per cent at the end of the earlier quarter, from 4.4 per cent in the December 2011 quarter (see chart). The stake in PSUs would rise further once its recent investment in Coal India’s offer for sale is taken into account. LIC invested Rs 10,200 crore in Coal India, taking 47 per cent of all shares made available.
According to a break-up of LIC’s exposure to BSE 200 companies, central PSU stocks accounted for 28.4 per cent of this equity portfolio, in line with PSUs’ 29 per cent share in the market capitalisation of all BSE 200 companies. Central PSUs now account for a third of the equity portfolio, way beyond their 21.7 per cent share in the BSE 200 market cap.
The analysis is based on the government-owned giant's shareholding pattern on BSE 200 companies, which is around 80 per cent of all BSE-listed companies by market cap.
Responding to a questionnaire, LIC said, “Our views on companies are long-term and investment decisions are taken after internal analysis and research. If we find value, we participate in such offers. It is a company- specific decision and does not have any consideration for PSU or non-PSU companies.”
However, central PSUs have been a laggard on the bourses by a wide margin in the past three years. Their market cap grew 39 per cent in three years, well below the 105 per cent appreciation in the value of non-PSU stocks on average during the period. The reason is in their comparative results. In the past two years, PSUs’ combined net profits grew at a compounded annual rate of 2.8 per cent, against a 6.2 per cent earnings growth reported by non-PSUs. PSUs also had a lower return on equity at 11.5 per cent (three-year average) against the 15.3 per cent reported by others.
Analysts say LIC is a long-term investor and no hasty conclusion should be reached on the basis of portfolio performance in three to five years. “PSUs largely operate in sectors that are facing headwinds –- metal, mining, capital goods, oil & gas, power and corporate banking. These sectors have borne the brunt of slowdown but over 15-20 years, these investments could pay off,” says G Chokkalingam, head of Equinomics Research & Advisory.
At the end of December 2014, LIC owned more than one per cent stake in 35 of the 38 central PSUs in the BSE 200, worth Rs 1.26 lakh crore, up 121 per cent in three years. The bulk of the growth was accounted by its incremental investment in these PSUs. The figure excludes investments in LIC Housing Finance that is classified as promoter’s stake. Three years earlier, LIC had exposure in only 33 of these companies.
In contrast, LIC has been a net seller in non-PSU counters. LIC now owns 87 of 162 non-central PSUs that are part of the BSE 200 index, down from 92 stocks three years before. Total investment in these stocks is worth Rs 2.54 lakh crore, up 77 per cent in three years. During the period, the combined market cap of these companies more than doubled, between December 2011 and December 2014.
Some prominent companies in which LIC owns less than one per cent stake are Hindustan Unilever, Lupin, HCL Tech, Axis Bank, Bosch, Tech Mahindra, Idea Cellular, Eicher Motors, Titan, Zee Entertainment and Shree Cement. Most of these stocks have out-performed the broader market by a wide margin in the past three years.
| LIC Stake in India Inc | |||
| All | PSUs | Private Cos | |
| Dec-11 | 4.5 | 4.4 | 4.6 |
| Mar-12 | 5.1 | 5.7 | 4.9 |
| Jun-12 | 5.5 | 5.8 | 5.3 |
| Sep-12 | 5.3 | 5.8 | 5.0 |
| Dec-12 | 5.1 | 5.9 | 4.8 |
| Mar-13 | 4.9 | 6.2 | 4.5 |
| Jun-13 | 5.0 | 6.2 | 4.7 |
| Sep-13 | 4.9 | 6.5 | 4.5 |
| Dec-13 | 4.8 | 6.7 | 4.3 |
| Mar-14 | 4.9 | 7.2 | 4.3 |
| Jun-14 | 5.0 | 7.1 | 4.3 |
| Sep-14 | 4.7 | 7.0 | 4.1 |
| Dec-14 | 4.6 | 7.0 | 3.9 |
