Let’s turn on its head, the argument about whether LIC should invest up to 30 per cent in any company’s equity. The government says it is the right decision, but the insurance regulator begs to differ.
Assuming the government is right about LIC to scale up its stake, why isn’t it equally right for the foreign institutional investors (FIIs) to also be allowed similar freedom in their holdings? The current Sebi regulations for FIIs allows them to hold only up to 10 per cent in the listed shares of a company. As a group they are allowed to hold up to 24 per cent in any company. The limit can be breached up to 49 per cent by a special resolution of the board of directors of the company, provided the sectoral cap for the sector is not breached.
Is there any colour of money that makes LIC holding any shares more precious than a commensurate holding by a foreign investor? In that case the government is plainly creating two classes of investors in the market that will harm the prospects for Indian equity in the long run. At present while market analysts do distinguish between domestic and foreign institutional investors but Sebi rules, wisely enough make no distinction between the two. Now there will be.
Also by extending the relaxation timed with the roll out of the disinvestment programme the government has made it explicit that LIC is an investment arm of the state. It is now on par with sovereign investment arms of several governments from Singapore to Nigeria and for which India has often expressed distaste. The only difference is that LIC is a largely domestic entity, which again means the local markets will pick up the tab. Other than in the disinvestment shows, from now on when LIC will show an interest in a company, will it express its own or that of the party in power, at that time. Because a long interest by the public sector insurer can make any company take over proof, from now.
Sandeep is a Senior Assistant Editor based in Mumbai.