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Even LIC Is Feeling The Heat In The Market Meltdown
The Nifty has lost a little more than 10 per cent since May 2019, wherein the index had crossed a record 12,000 points mark. Slowing growth, massive selling by Foreign Portfolio Investors and a jittery global environment have all contribued to the fall.
LIC bearing the brunt
The savage selling has hit a behemoth like LIC as well. If news reports are to be believed, 80 per cent of LIC's portfolio, which it held since Dec 2018 is deep in the red. Sometimes it is a bad investment decision and at other times it is complusions.
At times, the institution had to buy stocks to bail government owned companies in a public offering, where there were no much subscribers. Take the case of the last year's offering of Hindustan Aeronautics, where almost 70 per cent of the Initial Public Offering was subscribed by LIC, as the offer would otherwise not have sailed through.
One cannot expect a government company IPO to dissolve and hence LIC has played "saviour" on numerous occasions. This may have led to the institution picking up large stake, at a price it may not have been pleased with.
At other times, it may have had to content with buying a bank like IDBI Bank, where the NPAs spiralled out of control. IDBI Bank has been saddled with among the highest NPAs in the banking sector. So, the institution may have its own set of compulsions, which it may have had to go with.
Some decisions may have been correct at the time of buying a stock
Business conditions take a turn so swiftly, even the most astute investors can be stumped, leave alone LIC. A few years back, Cox and Kings was a favorite of many institutional investors and LIC too may have picked a stake. Today, the stock is among the top laggards in the LIC portfolio, thanks to mounting debt and adverse economic conditions. However, at the time of making the "buy" call, the decision may have been right considering the circumstances prevailing then.
In fact, many mutual funds too got stuck in a stock like Cox and Kings, just like LIC. Another pain point for LIC may also have been ADAG group stocks. For example, LIC along with a host of other mutual funds are either stuck in the equity or debt of the group, as the entire group stocks have taken a tumble on account of mounting debt.
Institutional investors are now sticking to a handful of companies
Institutional investors including mutual funds are now sticking to just a handful of good quality names, thanks to experience of stocks like Cox and Kings, where they have lost heavily.
In fact, most institutional investors are now sticking to stocks like the HDFC twins, TCS, Infosys, ITC etc., and are shunning the midcap and small cap universe. However, one cannot escape decisions of the past.
For the time being institutional investors will have to bear the brunt of past decisions, which means a sharp capital erosion and a portfolio that has a significant portion of red - at least until the markets revive.
