LIC's increased stake will make stock prices of its investees less volatile

14 August, 2012

The Government-owned insurer Life Insurance Corporation of India (LIC) could very soon buy more than 10% stake in any listed company as the federal insurance regulator is considering to give the green signal to a proposal to raise the equity cap of all insurers to 20%.

ACCORDING TO present norms LIC or any other insurer cannot hold more than 10% stake in a listed firm. With an asset of at least Rs. 13 trillion, LIC is the country's biggest insurer. It has been demanding to raise this investment limit of 10% to 20%, as 10% was too low for LIC's huge cash surplus available for investment.

If the country's insurance watchdog, Insurance Regulatory and development Authority(IRDA), increases the investment limit for the insurers then LIC, in particular, will make stock prices of its investees less volatile.

This proposal would benefit LIC in this way that there are lots of good companies where LIC's stake has already touched 10% but LIC would like to have more stake over there. Limit of 10% is a small amount which LIC reaches immediately. So 20% will obviously help LIC to increase its stake in good quality companies. LIC having an increased stake in other companies will make the stock prices of the companies less volatile. That would be helpful not only for LIC but for the market in general,” Siddhartha Bhamre, Analyst, Angel Broking, told this Citizen Journalist.

When IRDA gives the go ahead, the move will benefit equity investors, shareholders, as well LIC policy and instrument holders who look forward to a more stable LIC and a more profitbale and market-oriented one - at the same time investing its resources within a prescribed limit.

LIC already has 10% and more investment in many companies. Once the investment limit is increased, the state-owned life insurer will be the biggest beneficiary as the equity holdings of other private insurers are well below 10% in listed companies.

The relaxation will give an opportunity to LIC to invest in some big companies such as Tata Steel, ITC, L&T and State Bank of India among others, where it already holds more than 10 per cent stake.

IRDA's step to increase the investment limit of life insurers to 20% will also boost the equity market as there will be more investment in the equities of the companies.