LIC tidying up its equity portfolio ahead of IPO; insurer trimmed stake in firms with low market cap

Among the companies where LIC has trimmed its holdings, 13 had market capitalization of less than Rs 1,000 crore, and 22 had market cap of less than Rs 5,000 crore.

Life Insurance Corporation (LIC), the single largest investor in the Indian stock market, has been pulling out of companies with low market capitalization while it invests more in bigger firms ahead of its planned initial public offering (IPO). LIC, according to data sourced by The Indian Express from Prime Infobase, has shed its holding in 33 companies to less than 1% or has completely exited the stock. LIC’s IPO preparations have been initiated by the Ministry of Finance as it invited bids for consulting and advising on the IPO earlier last month.

The moves, by LIC, have been made over the last one year according to the report. Among the companies where LIC has trimmed its holdings, 13 had market capitalization of less than Rs 1,000 crore, and 22 had market cap of less than Rs 5,000 crore. Further, the data showed that LIC cut its holdings in four firms that had a market capitalization of less than Rs 100 crore. In the quarter ended March 2020, the insurer reduced shareholding in 7 companies to zero or less than 1%. Among these were, Hexa Tradex, Welspun Investments and Commercials Ltd, and Premier Limited. All three had a market cap of under Rs 100 crore at the end of last month. 

Along with dumping shares of low performing companies, LIC was also seen picking up shares of companies that have better market capitalizations. During the financial year 2020, LIC invested to increase its holding to above 1% in 28 firms. Data showed, 16 of these had a market cap of over Rs 10,000 crore and nine had a market capitalization of more than Rs 30,000 crore. Among the 28 where LIC invested to increase its shareholding, only three had a market cap of less than Rs 1,000 crore.

Explaining the rationale behind LIC’s investment experts said, “quality of assets and investments matter a lot for insurance companies. The insurer shed its holding in troubled private sector lender Yes Bank to 1.64% from 8% as the bank struggled to stay afloat. HCL tech, TATA Consumer products, Shree Cement, and IndusInd Bank are some of the firms where LIC invested to increase its shareholding.

Earlier this year, the Finance Minister Sitharaman had announced that the government will sell a part of its holding in LIC through an initial public offering. Analysts say LIC’s valuation could be somewhere between the range of Rs 9.9 lakh crore to Rs 11.5 lakh crore. The valuation has concluded on the basis of market capitalization as a percentage of the asset under management.