Stock To Buy: LIC Increases Stake To 7.10% In AA+ Rated PSU Stock Trading Below Rs 60, Via QIP

The Life Insurance Corporation of India (LIC) has increased its shareholding in the Bank of Maharashtra, raising its stake from 4.05% to 7.10%, as disclosed in an exchange filing on Saturday, October 5, 2024. The enhanced shareholding follows the bank's Qualified Institutional Placement (QIP), where LIC was allotted 25.96 crore equity shares.

With the allotment of shares through the QIP, LIC's stake in the Bank of Maharashtra has crossed the 5% threshold. The QIP shares were issued at Rs 57.36 per share, contributing an additional 3.376% to LIC's existing holding. This marks a strategic move by LIC to strengthen its foothold in the banking sector, as the Bank of Maharashtra seeks to boost its capital base through institutional investments.

As of Friday's trading session, Bank of Maharashtra's shares closed at Rs 57.66, down 1.4% from the previous session. On the other hand, LIC's stock saw a modest increase, rising by 0.36% to close at Rs 971. This move by LIC comes at a time when the Bank of Maharashtra is focusing on expanding its capital reserves to support future growth and maintain financial stability.

LIC's Recent Portfolio Adjustments

The state-owned insurance giant has been active in reshuffling its investment portfolio in recent times. Earlier, LIC had reduced its stake in Mahanagar Gas by 2% through open market sales, a move that freed up capital for other investment opportunities. Similarly, between November 2021 and September 2024, LIC slashed its holding in Aurobindo Pharma from 5.01% to 2.265%.

However, LIC has also been increasing its stake in other key public sector undertakings (PSUs). In September 2024, LIC raised its stake in the Indian Railway Catering and Tourism Corporation (IRCTC), moving from 7.278% to 9.298%.

Qualified Institutional Placement (QIP)

A Qualified Institutional Placement (QIP) is a method used by publicly listed companies in India to raise capital by issuing equity shares or securities that are convertible into equity shares. These shares are sold to qualified institutional buyers (QIBs), which include entities like mutual funds, insurance companies, and pension funds.

In the case of the Bank of Maharashtra, the QIP facilitated the swift allocation of shares to LIC, providing the bank with the necessary capital to fuel its expansion and meet regulatory requirements. The discounted share price offered in QIPs also makes it an attractive option for institutional investors like LIC.

In July, ICRA assigned an AA+ rating to Bank of Maharashtra's infrastructure bonds and reaffirmed the same AA+ rating for its Basel III Tier II bonds, with a stable outlook. ICRA's rationale highlighted the sustained improvement in the bank's earnings profile, driven by robust loan book growth and controlled slippages, which have kept its credit costs manageable.

Additionally, global rating agency Fitch assigned Bank of Maharashtra a Long-Term Issuer Default Rating (IDR) of 'BBB-', also with a stable outlook. This rating reflects Fitch's expectation of a high likelihood of extraordinary state support for the bank, given the government's 86% ownership in BoM.