LIC exposure to listed firms hits record low of 3.7%

Life Insurance Corp. of India (LIC), the country’s top institutional investor in the equities market, pared its stockholdings to a record low in the December quarter as it sought to capitalize on a surge in stock prices.

LIC trimmed its exposure in 290 listed firms to an all-time low of 3.7% of the total market value as on 31 December, according to data compiled by Prime Database. This is a drop from the state-run insurer’s shareholding of 3.91% just three months earlier and 3.96% at the end of 2019. LIC’s shareholding in these companies was at a record high at 5% in June 2012. LIC shareholding data includes companies where its stake is more than 1%.

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LIC’s move to cut stakes came as benchmark indices gained 24% in the December quarter. Domestic institutional investors, including insurance firms, mutual funds, banks and financial institutions, have turned net sellers, withdrawing ₹1.02 trillion from shares during the quarter.

“LIC continues to command the lion’s share of investments in equities by insurance companies (74% share). It is interesting to note that such cases (where a single insurance company holding in a company is greater than 1%) represent 86.09% of the overall insurance companies holding. For foreign portfolio investors (FPIs) though, this figure was a low 17.36%. A total of 22 insurance companies (ones holding greater than 1%) are invested in firms listed on NSE,” said Pranav Haldea, managing director, Prime Database group.

On an overall basis, LIC’s holding grew in 79 firms listed on the NSE in the December quarter. The average stock prices of these companies gained 20.82% in the same period. LIC reduced its holding in 68 companies on the NSE. The average stock prices of these firms rose 26.62% in the same period.

The companies that saw the highest reduction in LIC’s stake in percentage terms are New India Assurance, Bajaj Auto, Birla Corp., Apollo Hospitals Enterprise, Bharat Forge, Dr Reddy’s Laboratories, MSTC Ltd, Mphasis, DCW and Dabur India. In six of those 10 firms, LIC sold off its entire stake.

Companies in which LIC’s holding rose the most in the December quarter are Bank of Baroda, Punjab National Bank, Sanofi India, BEML, Capri Global Capital, Canara Bank, Sterlite Technologies, GMR Infrastructure, Strides Pharma and IndusInd Bank.

On an aggregate level, domestic insurance firms’ holding in 698 listed companies fell to 5% in December from 5.17% in September.

Insurers sought to benefit from the large gains in the equities market to partly offset the impact of the pandemic on new insurance premiums other than health insurance.

The life insurance sector shrank 0.8% in first-year premium to ₹1.24 trillion in the six months to September from ₹1.25 trillion a year ago. Gross direct premiums of non-life insurance sector grew 1.6% to ₹97,025 crore in the same period from ₹95,528.4 crore a year ago, driven mostly by the health segment where the pandemic led many to rush for insurance cover.

“The marginal fall in life insurance can be explained due to the lockdown and business disruption, especially in the first quarter. Further, the pandemic has created a rise in demand for protection plans, while the volatility has dented the demand for linked plans,” according to Care Ratings.

The rating agency expects the insurance industry to grow in single-digits during this fiscal year compared to a double-digit growth last year with the medium-term outlook remaining stable.

Meanwhile, retail investor holding in firms listed on the NSE fell to 6.9% in the December quarter from 7.01% in the September quarter, as these investors took advantage of the market rally to book profits. However, retail holding increased in 634 companies listed on the NSE last quarter when the average stock prices of these companies rose 23.77%. Retail investor holding fell in 929 companies where average stock price jumped 34.61%.

“This further validates the oft-used phrase that retail buys at the peak and sells at lows,” Haldea said.