Responding to concerns that the recent rout in Adani Group stocks will dent policyholders’ returns, Life Insurance Corporation of India (LIC) has offered disclosures to show that its overall equity exposure to the group is not that significant. LIC pointed out that even after recent declines, it was sitting on ₹26,000 crore gains on its Adani Group equity holdings at their current market value of over ₹56,000 crore, compared to th acquisition cost of ₹30,127 crore.
That is an 86 per cent gain over costs, despite the 11-40 per cent decline in Adani Group shares in past week. It is also true that the performance of Adani stocks don’t pose any existential risks to LIC, given that they account for less than 1 per cent of its overall assets of ₹41.6-lakh crore.
But having said this, the meltdown following Hindenburg’s startling allegations against the Adani Group do have the potential to dent future returns for LIC’s policyholders. For one, these allegations have meant that Adani Group holdings have gone from being outperformers in LIC’s equity portfolio to a drag on it. Calculations using Bloomberg and Capitaline data show that LIC’s Adani stock holdings, worth ₹83,387 crore in December-end, have lost over 30 per cent during January 2023, a time when the Nifty50 lost less than a per cent.
With LIC adding to its Adani holdings and stock prices also appreciating, the life insurer’s Adani portfolio had seen its value nearly double from ₹42,000 crore in December 2021 to over ₹83,000 crore by December 2022 before recent reversals.
Two, while LIC’s Adani holdings may amount to less than 1 per cent of its total assets, they seem to account for about 5.5 per cent of its equity portfolio. LIC’s equity assets were estimated at about ₹10.2-lakh crore as of September 2022 by Prime Database. The broader Indian market is up about 3 per cent from the September close, so this proportion is unlikely to have changed much till date. LIC seems to have made an active call to take a higher exposure to Adani stocks compared to domestic mutual funds. Domestic MFs with equity assets of Rs 22 lakh crore were estimated to hold about ₹26,400 crore in Adani stocks as of December 2022. This is just a 1.2 per cent exposure with most of these holdings in index funds.
Old and new
Three, LIC’s legacy holdings were in established and cash-generating Adani firms such as Adani Ports, ACC and Ambuja Cement (which are now part of the group) and are likely to have generated much of the gains so far. But LIC’s recent buys have tilted towards companies in nascent businesses such as Adani Green and Adani Total Gas, apart from Adani Enterprises, which is dubbed as an incubator for the group’s new forays.
LIC’s Adani equity play comprises of seven stocks, with Adani Total Gas today leading the way (₹15,300 crore market value), followed by Adani Enterprises (₹13,400 crore), Adani Ports (₹12,100 crore), Adani Transmission (₹6,500 crore), Ambuja Cements (₹4,700 crore), ACC (₹2,200 crore) and Adani Green (₹2,100 crore).
The accompanying table shows that while LIC’s allocation to Adani Ports, Ambuja Cement and ACC have declined in the past year, Adani Enterprises, Adani Green and Adani Total Gas have turned bigger exposures. Adani Green, Adani Total Gas and Adani Enterprises have accounted for a lion’s share of recent buys. For instance, in September 2022 quarter, a total ₹9,000 crore worth shares were brought in Adani Total Gas and Adani Green.