Adani Group investment undertaken in prudent norms by LIC
The Adani Group investment was made with ethical criteria in mind: LIC. Despite the conglomerate led by billionaire Gautam Adani’s stock taking a beating on February 1, Siddhartha Mohanty, managing director and CEO of MD State-backed Life Insurance Corp (LIC), reiterated that the insurance business is sincere about its investments in the Adani group.
He continued that Adani investments are within our prudent criteria, adding, “we routinely talk to companies that we support.” But the question arises why only LIC is feeling safe and secure from Adani Group.
Mohanty made his comments in response to a US-based short-seller report released by Hindenburg Research last week, which raised concerns about the group’s high debt and the valuations of seven listed Adani companies and allegations of stock manipulation improper use of offshore tax havens by the group.
The group has lost about $66 billion since Hindenburg Research, and LIC has infused more than $4 billion. Additionally, LIC had yet to define its exposure to the Adani group of companies in the dawn of the incredibly volatile share prices of the Adani group of enterprises.
LIC has stated clearly that the total cost of the shares of Adani Group companies it has acquired over the past several years is Rs. 30,127 crores. Today, LIC’s exposure to the Adani group represents 0.975 per cent of all purchases under management (AUM) at book value.
On February 1, most Adani Group equities fell as fears over stock volatility persisted. The most prominent corporate organisations are now suffering an $84 billion loss.
Following news that Credit Suisse no longer accepts bonds from Adani companies as collateral for margin loans, Adani Enterprises experienced a nearly 26% decline, closing at Rs 2,180.20 per share on the BSE. Adani Ports, a different group stock, saw a 20 per cent lower circuit and ended each at $492.15. Ambuja Cements’ 16.56 per cent slide to close at Rs 334.60 and ACC’s 5.96 per cent drop to Rs 1,852 further exacerbated the group’s decline.
“Policyholders’ Money Is Completely Safe,” according to LIC’s Adani Investment. Know the reasons here.
Should LIC policyholders and investors be alarmed by the stock market beating suffered by Adani group shares due to the report by US-based short seller Hindenburg Research? It is said that the Life Insurance Corporation made a sizeable investment in the Adani group.
Earlier this week, the LIC argued that less than 1% of its total AUM (assets under management) was allocated to the Adani group. According to the LIC, it has put less than 1% of its total AUM into the Adani group. However, it still exceeds Rs 35,000 crore (Rs 350 billion). Most people express concern.
I’ll respond in two sections. One is that Adani is a prime illustration of Indian crony capitalism. We as a company are sure about that. We concur that the Hindenburg report raised some critical issues.
We, as a group, want the government to order a search to ascertain the truth since it is crucial to the Indian economy. A fair analysis is directed to reassure LIC investors.
We are concerned about SEBI’s need for more response. SEBI ought to learn the truth as well. We have differing views on how Adani’s expansion has been handled. It’s a blatant example of how political favouritism aided someone’s development.
The effect of Adani on LIC is the following factor.
LIC has been highly vocal in expressing its concerns about the Hindenburg report.
As the largest investor, it has the right to ask about both Hindenburg’s findings and Adani’s explanation. We approve of LIC’s current position.
LIC’s investment strategy now dictates that 80% of its capital is placed in secure contracts, such as government securities, bonds, etc.
The remaining 20% is funded in stocks by LIC. A long-term investor is LIC. As a result, decisions about investments are made with the long-term benefits of policyholders in mind.
LIC has an investment board, and the committee makes investment decisions after careful review. When it comes to the investment in the Adani group, people are just talking about a notional loss since the market value has dropped, not an actual loss.
LIC has yet to lose money by trading any Adani shares in the market. They still feel safe. But why?
Because the investment in Adani shares amounts to around Rs 35,000 crore, LIC has generated a theoretical profit. It is still worth 56,000 crores of rupees. There is, thus, no actual loss. Also, conceptually, there is no profit.
Only when LIC sells its marketable shares does it become clear if it made money or lost money. It is merely hypothetical at this time. When we spoke once, you had said that the public’s trust in LIC had been impacted by the government’s decision to sell its shares. Do you believe this situation would affect the people’s faith and confidence in LIC?
There are two problems with this. A sizable corpus is available for investment by LIC. The LIC creates a surplus of between Rs. 4.5 lakh crore and Rs. 5 lakh crore per year. What do you support? You must keep the money from sitting around.
If it is inactive, you cannot pay policyholders a return. As a result, it needs to be funded suitably.
Is making such a tangible investment in one organisation wise?
The entire exposure in the Adani group’s representative is only 7% of all finished equity assets. Even in some public sector banks, it is even more critical if you look at the Reliance group.
Even though Rs 35,000 crore seems to be a sizable sum, it is nothing compared to LIC’s annual quantity.
LIC had already faced real public scrutiny. The argument used to sell ONGC shares was that LIC was injecting cash into the government’s coffers. However, we have profited handsomely from the ONGC shares.
It was a loss-making bank when we bought shares of IDBI Bank. Thus, there was great value in criticism. But now, we are profiting from IDBI Bank. Because LIC is a long-term investor, it differs from the other investors.
However, banks are unable to make long-term investments. I can assure you that the policyholders’ money is fully secure. Because our solvency ratio far exceeds what is needed. Additionally, the support of the corporation is suitable to meet all liabilities.
I’m referring to the book value of the support rather than their market worth. As a result, there is no justification for alarm. Their money will be kept secure.
Is it not unsettling to witness one group’s power on the Indian economy, especially in the dawn of how the thrift responded to the decline of Adani shares?
Of course, it’s alarming. It concerns in more ways than one that a single person’s corporation owns a substantial part of the infrastructure projects that make up India’s economy, from ports to airports.
The actual query is whether or not there is transparency in governance. We suggested LIC bring up this matter. Everyone in India should be concerned about the current economic monopoly, not just LIC. Massive inequality exists in the country due to this type of economic paradigm.
Adani Group is one of many issues facing LIC, but they feel secure.
Life Insurance Corporation of India (LIC) is relatively more extensive than the greatest international portfolio investors, is the largest insurance business in India and is the largest institutional investor in the Indian stock markets (FPIs).
The insurance giant has been in the news for its involvement with the Adani Group, whose valuation has almost halved in recent trading sessions due to the damning analysis published by Hindenburg Research last week.
The matter has taken on a political size as several lawmakers have called for an investigation into the insurance company’s choice to purchase shares of the Gautam Adani-founded diversified business conglomerate.
But many people might be surprised to learn that LIC has many other investments that have experienced significant value erosion over the past six months, despite the benchmark Sensex’s 2.7% gain. These additional investments include more than just the Adani Group, which has been struggling.
Thirty-six businesses that LIC owns shares in have seen their stock prices fall by almost 20% during the last six months. Of course, changes in the stock price could be caused by several external variables and are not always related to the fundamentals of the business per se.
Furthermore, according to market participants, because LIC is a long-term investor who generally keeps the shares for many years, its investments shouldn’t be considered over a short time frame or in the context of recent corrections.
According to data from Ace Equity, the value of LIC’s investments in firms like Future Lifestyle Fashions, Piramal Enterprises, Omaxe, Indus Towers, Laurus Labs, Jet Airways (India), Sunteck Realty, Bombay Dyeing, GTL Infrastructure, Aurobindo Pharma, and Jaypee Infratech, among others, has decreased by between 58 and 28 per cent over the past six months, excluding Adani Group entities.
LIC is a shareholder in Adani Green Energy, Adani Transmission, Adani Total Gas, Adani Ports and Special Economic Zone, and Adani Enterprises, all of which are part of the Adani Group. All three companies rank among the top losers in the LIC portfolio when the past six months’ performance is considered, given their recent beating.
However, regarding shareholding percentage, Adani Group companies do not rank among LIC’s top holdings. Adani Enterprises, Adani Transmission, Adani Green Energy, Adani Total Gas, and 9.14 per cent of Adani Ports belong to LIC. In contrast, Adani Total Gas holds 5.96 per cent, 4.23 per cent, 3.65 per cent, and 9.14 per cent of Adani Enterprises, respectively (1.28 per cent).
ITC (15.29%), Standard Batteries (19.99%), Modella Woollens (17.31%), ITC (13.67%), NMDC (13.67%), Mahanagar Telephone Nigam (13.25%), Gloster (12.85%), Larsen & Toubro (12.50%), and Simplex Realty are the ten companies in which LIC has the most effective ten holdings (12.38 per cent).
In addition, shares of seven of these ten companies have increased in value over the past six months, with as many as five of those increases being double digits.
In the meantime, LIC has stated that its exposure to the equities of the Adani Group is merely 0.975% of its total assets under management, which stood at 41.66 lakh crore as of September 30, 2022.
According to LIC, its total exposure in the Adani Group by equity and debt is Rs 35,917.31 crore as of December 31, 2022. The total purchase value of equity, developed over many years, is Rs 30,127 crore. The market value at the close of market hours on January 27 was pegged at Rs 56,142 crore – though this number has taken an effective hit since then.
It should be seen that all of the Adani debt instruments held by LIC have AA or higher credit ratings, which complies with the IRDAI investment standards that apply to all life insurance companies, according to LIC’s stock exchange filing from January 30.
Edited by Prakriti Arora
