Mumbai: India is to allow state-run Life Insurance Corporation of India (LIC) to triple the maximum stake it can hold in other companies to 30% in a move seen as helping a government sell-off of its own holdings in a range of firms.
The government plans to raise Rs.30,000 crore via share sales in state-run companies by the end of March next year, a crucial part of efforts to contain a widening fiscal deficit.
The government said on Wednesday it would kick off sales by offloading a stake in Hindustan Copper Ltd on Friday and in two more state companies by next month.
A market rally earlier this year has stalled and analysts said the government may be looking to LIC to support asset prices as it targets a budget deficit of 5.3% of gross domestic product (GDP) this fiscal year.
LIC has previously bailed out the government in share sales that failed to generate sufficient demand, including buying most of the shares in a $2.6 billion (around Rs.14,350 crore today) stock auction by Oil and Natural Gas Corp. Ltd in March.
“The government needs money, markets are not supportive, time is running out, valuations are not attractive for the government,” said Mehraboon Irani, head of the private client group at brokerage firm Nirmal Bang Securities Pvt. Ltd.
Irani said LIC could potentially buy shares in companies at higher prices than would be acceptable to markets.
Standard and Poor’s and Fitch Ratings cut India’s sovereign ratings outlook to “negative” this year, putting the country at risk of losing its investment grade category.
Pressure on the government has grown after an auction of second-generation mobile phone licences this month attracted just a quarter of the original target.
Last month, it dropped plans to list steel maker Rashtriya Ispat Nigam Ltd after disagreements over pricing with investment bankers.
Increasing the amount that LIC can hold in companies was expected since the insurer already owns stakes above 10% in some firms, including state-run State Bank of India.
Mohammad Haleem Khan, secretary in the department of disinvestment, said the government would sell a 4% stake in Hindustan Copper, valued at nearly Rs.900 crore at current market prices, through an auction.
It also plans to sell stakes in miner NMDC Ltd and explorer Oil India Ltd before 20 December, Khan told reporters.
The benchmark BSE index, the Sensex, has fallen 1.6% since the start of October, hit by weaker global markets and worries about the country’s ability to pass fiscal and economic reforms, but is still up 19.5% this year.
“It is definitely positive for the market and the government,” said G. Chokkalingam, chief investment officer at Centrum Wealth Management Ltd.
“Pressure on the market will come down,” he also said, referring to worries of big share sales hitting the market.
LIC’s investment income, which comes mainly from equities, has grown from around Rs.32,200 crore in the year ended March 2006 to Rs.77,700 crore five years later.
Abhishek Vishnoi, Manoj Dharra and Sumeet Chatterjee in Mumbai contributed to this story.