MUMBAI: Life Insurance Corp, which often bails out the government in share sales of state-run companies, may have hit the jackpot on the back of the rally in the companies. The institution has been the most dependable automated teller machine for the government in the past couple of years, buying record number of bonds and stocks of companies sold by the state.
In the recent QIP issue of State Bank of IndiaBSE -1.61 %, LIC increased its stake to 14.9 per cent from 13.7 per cent by picking up 41.3 per cent of the issue. SBIBSE -1.61 %shares are trading at Rs 1,922.25 on the BSE, while the price band for the share sale was Rs 1,565-1,596.
“We are in a five-year bull run, and the market is going to rally for another three years,” said Deven Choksey, CEO, KR Choksey. “LIC has always been a long-term investor. Even if PSU bank stocks have done well, they are still undervalued,” he said.
LIC remains the single largest buyer of government bonds because of its control of more than three fourths of the life insurance industry, and the mandatory 50 per cent investment it has to make in government securities. It has invested close to Rs 8-lakh crore in government securities, including central and state securities, besides another Rs 2-lakh crore in housing and infrastructure.
The insurer recently bailed out public sector banks such as Dena BankBSE 0.24 %, Syndicate BankBSE 0.25 %, Indian Overseas BankBSE -0.47 % and IDBI BankBSE 1.49 %, which needed capital to comply with the Basel-III norms.
“LIC was bailing out the government for the past couple of years, and it has bought PSU stocks at rock bottom prices,” said Arun Kejriwal, head of Kris Securities.
“There’s no compulsion for LIC to book profits as there’s no need to deploy funds. The current rally is triggered largely by foreigners’ belief in the governance of the economy and growth. LIC’s investments have gone haywire only when ruling parties have intervened.”