Coronavirus pandemic burns Rs 1.9 trillion hole in LIC's investments

A 30 per cent drop in the S&P BSE Sensex and the Nifty 50 thus far in the calendar year 2020 (CY20) has weighed heavily on the fortunes of state-owned life insurer, Life Insurance Corporation of India (LIC), which has suffered a notional loss of about Rs 1.9 trillion in the past two-and-half months. The insurer, known for making large equity investments, has substantial holdings in many listed companies. The dent comes at a time when the government is drawing up plans of listing LIC at the bourses, subject to legislative changes and regulatory approvals.

The value of insurer’s holdings in listed companies at the end of December 2019 quarter stood at Rs 6.02 trillion, which is valued at Rs 4.14 trillion now, translating into a mark-to-market hit of Rs 1.88 trillion, or 31 per cent. The study is based on 209 companies from the S&P BSE 500 index where LIC held over 1 percentage point stake in the December 2019 quarter. These companies accounted 65 per cent of total market capitalisation of BSE-listed companies.

Among sectors, financials including banks, non-banking financial companies (NBFCs) and insurance companies, the top value destroyers, accounted 30 per cent or Rs 56,810 crore of total LIC value erosion during the period. Oil & Gas (Rs 36,020 crore), cigarettes makers (Rs 17,374 crore), information technology (Rs 15,826 crore), metals (Rs 12,045 crore), automobiles (Rs 11,329 crore) and infrastructure (Rs 10,669 crore) are other sectors, in which LIC lost a more than Rs 10,000 crore values during the period.

“Services-related sectors will be the worst hit due to Covid-19. Agri will largely remain unaffected, while manufacturing will be hit to the extent that there will be a supply-side issue. Within the services, too, there are sub-divisions for the impact. While telecom may largely remain unaffected, hotels, travel & tourism will bear the brunt. All this will continue to impact investors’ fortunes, including LIC. This is a systemic issue,” explains G Chokkalingam, founder and managing director at Equinomics Research.

Over the next few months – at least till there is clarity on the impact of Covid-19 on the economy and the fortunes of India Inc – analysts at Credit Suisse Wealth Management expect fund flows into equities – both domestic and foreign – to taper off, which again will put the Indian markets under pressure.

“Foreign portfolio investors (FPIs) are selling and cutting their exposure to emerging markets (EMs) given virus fears and crash in oil prices, as they are unwinding their aggressive bets and India is no exception. So far the domestic equity flows have been robust, but given challenging macro conditions and unwinding of leverage positions, sustenance at this pace looks difficult,” said Jitendra Gohil, head of India equity research at Credit Suisse Wealth Management.

That said, while most analysts agree that the markets are yet to fully price-in the impact Covid-19 has on the economy and fortunes of India Inc, they do not rule out a sharp recovery once the health scare peaks-out. Analysts at Nomura, for instance, maintain Nifty50 target of 11,030 for March 2021 based on 15x March 2022 earnings. This is after accounting for the 8 per cent lower-than-consensus’ current earnings estimates.