Government’s disinvestment programme is carrying a can on country’s largest institutional investor Life Insurance Corporation of India’s (LIC) small investors.
Almost all of LIC’s investments in government disinvestment programme which was restarted in mid 2009 have gone wrong leading to notional losses for policyholders in the underlying schemes.
Since 2009 LIC has invested in seven divestment issues. In these issues LIC has invested Rs 12,400 crore accounting for quarter of Rs 45,000 crore through public issues in last two years. This holdings of LIC at present are worth of Rs 9,379 crore these investments have seen an erosion of 24.5%. It is a notional loss of Rs 3,038 crore. Eventually these losses will be passed on to policyholder who has purchased insurance policies or Unit-Linked Investment Plans.
This is excluding last’s week’s last-minute investment in the Rs 12,766 crore ONGC sales of shares. Losses are expected to increase if the 7% post auction fall in the explorer’s share price is taken into account.
LIC is investing savings of small investors in government’s divestment programme. Though government is saying that LIC is investing by its investment rationale but there are not many takers for this theory. Results of investments of LIC makes it evident as out of seven issues in which LIC has invested six have given negative returns while four public issues which LIC skipped have performed well.
Another explanation is that institutional investors buy shares for long term and these offers provide opportunity to pick good stocks for long term.
Biggest loss for LIC came in Shipping Corporation of India (SCI) which is down 50%. PTC India is down 41% while NMDC is down 39%. In terms of absolute losses NMDC investments saw the biggest erosion of Rs 2,295 crore while NTPC saw the erosion of Rs 654 crore. In SJVN which has lost around 25% of its value since public issue LIC’S Market Plus 1 scheme held 47.5 million shares as of December 2011. However, it is not clear how much part of it was picked up in IPO.
Like in SJVN LIC is picking up additional shares at lower prices in other companies as well. It has taken up 56 million shares in SCI, 23Million in NTPC and one million in NMDC.
LIC’s only investment in primary market that is in green is Rs 73 crore investments in Power Grid. This investment has witnessed a growth of 22% or Rs 17 crore.
However, issues which LIC avoided gave good returns such as Coal India which has given the return of 35% since its public issue. Other issues which LIC avoided include Rural Electrification Corporation (REC), United Bank of India and Oil India.
In addition to the choice of stocks, the prices of stocks at which they are picked have also raised questions. Several annalists have raised the question on the rationale of LIC of picking up ONGC stock which did not see enough demand at floor price of Rs 290 at a substantially higher price. In the ONGC sale LIC has picked 400 million shares at an average price of Rs 303.
LIC has always been a last resort for government’s divestment programme since 2009. First time government resorted to LIC was in early 2010 when government was pushing Follow-On Public Offer (FPO) of NTPC. Then LIC picked 168 million shares in the FPO of NMDC at the price of Rs 300. Then LIC bought the shares of Engineers India in its FPO which came at the price of Rs 290.
Almost all of LIC’s investments in government disinvestment programme which was restarted in mid 2009 have gone wrong leading to notional losses for policyholders in the underlying schemes.
Since 2009 LIC has invested in seven divestment issues. In these issues LIC has invested Rs 12,400 crore accounting for quarter of Rs 45,000 crore through public issues in last two years. This holdings of LIC at present are worth of Rs 9,379 crore these investments have seen an erosion of 24.5%. It is a notional loss of Rs 3,038 crore. Eventually these losses will be passed on to policyholder who has purchased insurance policies or Unit-Linked Investment Plans.
This is excluding last’s week’s last-minute investment in the Rs 12,766 crore ONGC sales of shares. Losses are expected to increase if the 7% post auction fall in the explorer’s share price is taken into account.
LIC is investing savings of small investors in government’s divestment programme. Though government is saying that LIC is investing by its investment rationale but there are not many takers for this theory. Results of investments of LIC makes it evident as out of seven issues in which LIC has invested six have given negative returns while four public issues which LIC skipped have performed well.
Another explanation is that institutional investors buy shares for long term and these offers provide opportunity to pick good stocks for long term.
Biggest loss for LIC came in Shipping Corporation of India (SCI) which is down 50%. PTC India is down 41% while NMDC is down 39%. In terms of absolute losses NMDC investments saw the biggest erosion of Rs 2,295 crore while NTPC saw the erosion of Rs 654 crore. In SJVN which has lost around 25% of its value since public issue LIC’S Market Plus 1 scheme held 47.5 million shares as of December 2011. However, it is not clear how much part of it was picked up in IPO.
Like in SJVN LIC is picking up additional shares at lower prices in other companies as well. It has taken up 56 million shares in SCI, 23Million in NTPC and one million in NMDC.
LIC’s only investment in primary market that is in green is Rs 73 crore investments in Power Grid. This investment has witnessed a growth of 22% or Rs 17 crore.
However, issues which LIC avoided gave good returns such as Coal India which has given the return of 35% since its public issue. Other issues which LIC avoided include Rural Electrification Corporation (REC), United Bank of India and Oil India.
In addition to the choice of stocks, the prices of stocks at which they are picked have also raised questions. Several annalists have raised the question on the rationale of LIC of picking up ONGC stock which did not see enough demand at floor price of Rs 290 at a substantially higher price. In the ONGC sale LIC has picked 400 million shares at an average price of Rs 303.
LIC has always been a last resort for government’s divestment programme since 2009. First time government resorted to LIC was in early 2010 when government was pushing Follow-On Public Offer (FPO) of NTPC. Then LIC picked 168 million shares in the FPO of NMDC at the price of Rs 300. Then LIC bought the shares of Engineers India in its FPO which came at the price of Rs 290.
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