7 stocks that have kept LIC’s equity portfolio stable

Over the last eight calendar years, The IPO-bound insurance behemoth LIC has focused its energies on retaining a reasonably stable set of seven companies among its ten largest equity holdings in its portfolio, which has now touched an investment value of ₹ 9.78 lakh crore as of September 30 last year. 

This equity investment of ₹9.78 lakh crore accounts for almost 25 per cent of LIC’s total policyholders’ investments of about ₹39.5 lakh crore.

Over the last few years, the equity portfolio component in overall investments has seen a sharp increase from 15 per cent as of end March 2020 to about 25 per cent in September last year.

Equity portfolio

The seven companies that are seen to be the jewels in the crown of LIC’s largest equity holdings are Reliance Industries ,Tata Consultancy Services ,Infosys ,ITC , ICICI Bank ,State Bank of India and Larsen & Toubro.

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“If one were to analyse the top ten equity holdings of the insurance behemoth each calendar year as of end December, one can see these seven companies figuring in each of the last eight calendar years. This reflects the stable set that the insurance behemoth is relying on as its top picks of large caps”, sources said.

Other than the State Bank of India, there are no public sector bank or state-owned entity that has made it to LIC’s ten largest equity holdings each year in the last three calendar years (2019, 2020,2021), they added. ONGC, which formed part of this top ten largest holdings league four years back (2018), was the only other public sector entity that figured in this league in recent years. 

AUM

With $ 520 billion (about ₹40 lakh crore) in total assets under management (AUM), LIC is the largest institutional investor in Indian markets. LIC’s equity AUM of $130 billion (₹9.78 lakh crore) gives it a 29 per cent share of domestic institutional equity AUM— a shade more than half of all equity mutual funds in India. LIC’s stake in the Indian market is about 4 per cent as of September 30, 2021, down from the 4.7 per cent level seen in 2017.

LIC’s stake in state-owned enterprises (SOE) stocks have been disproportionately high at 8-9 per cent. It has fluctuated, but the share of SOE companies in LIC’s equity portfolio has fallen consistently, a recent research note by UBS Securities showed.

Overall, LIC’s equity portfolio has outperformed Nifty500 in 14 out of the past 29 quarters, it highlighted. At an expected IPO size of at least ₹65,000 crore, the free-float market cap of LIC at $8.6 billion would make it the 32nd largest company in the free-float market cap pecking order.

On the debt side, LIC is the single largest owner of government bonds ( centre +state) at 19 per cent of outstanding bonds. In fact, LIC holds more than RBI’s holding of government bonds. 

LIC IPO

The upcoming LIC IPO is expected to be structurally positive for the insurance sector in the long run. Given its reach and size, it might increase awareness and benefit private insurers, say, analysts.

Meanwhile, Macquarie Research, in a note, said that other life insurance players could underperform in the near term ahead of LIC IPO. At the upper end of the valuation, it added that LIC IPO could result in close to 60 per cent of the free-float market cap of the three large listed private life insurance companies.

Embedded Value

It has also highlighted that the embedded value of LIC has seen a sharp rise to ₹ 5.4 lakh crore as of September 30 , 2021 from ₹0.9 lakh crore as of March 31, 2021 largely due to equity market gains — transferring large part of equity book to non-par segment and subsequently marking them to market.

Macquarie also believes that a part of these equity gains would have been allocated for meeting the solvency margin of ₹2 lakh crore as disclosed in the draft red herring prospectus.

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