LIC: L&T, ITC, Cipla

The Insurance Regulatory and Development Authority has decided that LIC and private insurance players must work on a level playing field. The move will reduce LIC’s equity exposure in a company from 30% to 10%.

     Print Edition: October 16, 2008

CompanyLIC Stake (%)Sale Receipt*
Larsen & Toubro
16.78Rs 5,091 cr
ITC14.35Rs 3,089 cr
M&M17.49Rs 1,029 cr
ACC15.93Rs 680 cr
Ranbaxy Labs15.01Rs 555 cr
* If the equity is diluted to 10%. Based on prices as on 26 Sep

The Life Insurance Corporation has for long towered over the Indian insurance industry. And it has played the role of a benign giant to perfection—for years, it has come to the rescue of companies it has invested in. And because it is one of the few domestic institutional investors with large sums at its disposal, it could rein in market volatility in case of stock market swings. The Finance Ministry has often asked LIC to check market falls by infusing some capital, or to restrain frenzied sales.

Now, it looks like those days are numbered. The Insurance Regulatory and Development Authority (Irda) has decided that LIC and private insurance players must work on a level playing field. The move will reduce LIC’s equity exposure in a company from 30% to 10%. This means that LIC will lose the clout it has enjoyed for many years through its investments, specifically through its exposure in equity and debt instruments. If LIC were to trim its stake to the Irda-specified levels, it will have to sell Rs 11,821 crore in BSE 100 companies alone, creating an imbalance in the firms where it holds a higher stake. The fear of shares being hammered when sold in large quantities (even in a phased manner) is a matter of grave concern to those companies where the corporation has a higher holding. LIC has also voiced its fears that it may not get a good value on its investments because of the market downturn.

LIC picked up huge stakes in companies because it had developed products with a high interest rate element, which called for long-term investing for it to earn returns for its policyholders. The book value of LIC’s assets is Rs 6,70,000 crore, of which about 16% or Rs 1,07,200 crore is in equities. It has asked Irda to relax the cap to 20% because of its long history compared to the newer private players.

For policyholders, there is cause for concern. The new rules will make investing more difficult for the insurer, which will impact the returns earned on policies. For companies, increasing the share to the public or to large investor blocks will mean stringent corporate governance.

In an earlier war between Irda and LIC, regarding the minimum amount of Rs 100 crore capital, the latter was the winner. Several private insurers have felt that this violates the rules of the game, but LIC claims that a Rs 5 crore capital base is sufficient. The ball is now in the Finance Ministry’s court. It will decide the future course of action not only for LIC but also for the infrastructure projects being undertaken by various government bodies which feature LIC investments.

Irda cracks the whip

• LIC has over 15% stake in ACC , ITC and Ranbaxy Labs

• LIC has over 10% stake in as many as 19 companies listed in the BSE 100

• BSE 100 shares worth approximately Rs 11,821 crore will have to be sold for LIC to adhere to the 10% ceiling 

— Narayan Krishnamurthy

WORD’S WORTH

Montek Singh Ahluwalia
Montek Singh Ahluwalia
“I expect inflation to come down to a single digit before the end of the financial year”
— Montek Singh Ahluwalia, deputy chairman, Planning Commission

“This is not the end of the global financial crisis. Developers are expecting business to pick up during Diwali. But it is unlikely to happen anytime soon”

—Anuj Puri, chairman and country head, Jones Lang Lasalle Meghraj

“I don’t try to time things, but I do try to price things. I’ve got a formula that says bet on brains, when it’s the right type of deal”

—Warren Buffett, CEO, Berkshire Hathaway Inc

“We will see a new high by 2010, when the uncertainty in the global markets is diminished and domestic concerns like inflation and high interest rates come under control”
—Amitabh Chakraborty, head (equity), Religare Securities

Source: Financial Express, Economic Times and Hindustan Times

 

Holiday planner

Where would you like to holiday this winter? If you want to follow the herd mentality then the top destinations for the next year are Singapore, Dubai and Australia. The Nielsen India Outbound Travel Monitor 2008 also reveals that though close to half the respondents say that their main reason for travelling abroad is to explore a new place, topped only by a desire for sight-seeing, they don’t want to venture far from home. And that is why Asia is the most popular destination for Indians when heading overseas.

One of the most important findings of the survey, conducted in partnership with the Pacific Asia Travel Association (PATA), is that while the Internet is one of the most popular sources of information on destinations, with 48% claiming they regularly surf for deals, only 12% actually make an online booking. As Vatsala Pant, associate director, The Nielsen Company, says, “While booking over the Net is becoming more popular, visiting a travel agent for direct and personal interaction is still preferred by many Indians.”

— Sushmita Choudhury

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