In an interesting turn of events, the government has decided to ask the Life Insurance Corporation (LIC) to consider picking up 10 per cent stake in the troubled Kingfisher Airlines.
The government has asked LIC to consider it, but the final decision will be taken by the insurer.
LIC has enough headroom in its equity investment target for the current financial year. Given the attractive valuation, it may get a good bargain.
Going by the present market valuation, it could be quite a buy for LIC, as the airline’s share price has tanked 62 per cent in the current financial year to Rs 24.95 a share on Friday from Rs 66.05 on April 1. Going by the present market value, LIC would be required to invest Rs 124 crore for 10 per cent stake.
Whenever LIC planned significant exposure in a particular company (say, 5-10 per cent stake) it kept the regulator and the government in the loop.
During 2010-11, LIC invested Rs 1.96 lakh crore, of which Rs 43,000 crore was invested in equities. In the current financial year, the insurer has plans to invest a similar amount in equities. However, given the volatile nature of the equity market, during the first six months of the current financial year, LIC has invested only around Rs 15,000 crore in equities. The total equity investment in the same period last year stood at Rs 54,000-55,000 crore.