LIC is one of the most
trusted brands in India and because of this trust crores of Indians have
invested and continued to invest their hard earned money in LIC plans. Recently
Government has increased the cap of investing in single company from 10% to 30%
for LIC only, whereas private players still are not allowed to invest more than
10% in single company. LIC till date was holding more than 10% in many
companies and to overcome the issue Government has taken this step to safeguard
LIC. By allowing LIC to invest up to 30% in a single company will increase the
risk of concentration in its portfolio and needs to address carefully. SEBI and
IRDA chiefs have already expressed their concern over the issue. It seems that
the government is using LIC for its own benefit so that its disinvestment
targets are met. This limit is raised for LIC only as LIC is the largest
investor in equity in India and invests more than Rs. 50,000 crores in equity
every year. Investing in equity comes in high risk high return category and
needs to be done after in depth research.
We all know that
budgetary deficit is the major concern for the government. RBI has also taken
firm stand on budgetary deficit and has reduced rapo rate by 0.25% only.
Recently Government has also taken many steps to contain the deficit including
hike in diesel price and CNG prices. Now the diesel price is partly
decontrolled and diesel price is likely to increase by 50 paisa every month. But
the measures have not sufficed and the projection for the GDP growth for F.Y.
2012-2013 is still below 6% which is really worrying the Government. Rupee has
appreciated recently against dollar but the crude oil price on the other hand
is near to touch 100 marks again. In this scenario containing deficit will be a
major challenge for the government.
It’s true that
Government must achieve its disinvestment target to reduce the deficit but it
is also important at the same time that investor’s money is protected. We must
note here that few months back LIC invested a large sum for rescuing the
disinvestment of ONGC shares at Rs. 304 per share. The total investment was
around Rs. 11,450 crores. At present the price of ONGC is Rs. 325 per share but
one has to know the price has fallen to Rs. 250 per shares in the month of
December’2012. Recently LIC also purchased 2% stake in Hindustan Copper
divestment at Rs. 156 per share and the current rate of Hindustan copper is Rs.
128 per share thus signifying significant loss to the policy holders. These clearly
show that LICs fund is not professionally managed and is used as chest for the
government. This is also fact that bonus rates of LIC have come down in recent
past and also LIC has reduced loyalty bonus rates also.
This reminds me of all
time investors scheme of UTI’s unit 64 and we all know what happened to that
scheme. It is the high time that funds of the LIC are managed professionally so
that investor’s money is protected. I hope that LIC management will take this
as a serious issue and take corrective steps and refuse to bail out government
at the cost of its policy holders. We will see another round of disinvestment
in NTPC, Oil India, SAIL and National Aluminium Company and hope that LIC will
take prudent decision and will see investors interest first before investing in
PSUs.
This article is first appeared at myiris.com on 5th February'2013
http://www.myiris.com/financial/storyShow.php?dir=2013/02/05/&fileR=20130205104503715
