Rs 8,150 crore gone in a day: LIC takes biggest hit in ITC’s free fall

NEW DELHI: A steep 13 per cent drop in the ITC shares on Tuesday weighed heavy on its largest shareholder, Life Insurance Corporation of India (LIC), which suffered a notional loss of over Rs 8,150 crore for the day.

The state-run insurer lost over Rs 7,000 within the first few minutes of trading. Selling pressure on the counter intensified as the session progressed. The insurer eventually lost Rs 8,152 crore on its ITC investments, as the cigarette maker saw its market value contracting by Rs 50,045 crore to Rs 3.46 lakh crore.

LIC held 16.29 per cent in the cigarette maker as of June 30, 2017. Domestic insurance companies together lost Rs 11,250 crore, while FPIs took a Rs 10,000 crore hit in what was the biggest fall in the ITC stock in 25 years.

LIC has been steadily raising stake in the cigarette maker for some time now, from 12.63 per cent four years ago and 14.34 per cent as of June 2016.



Sukumar Rajah of Franklin Templeton Investments said his firm looks at three important matrix in stocks: quality, sustainability and growth. “An industry like tobacco has very poor sustainability and because of this issue, it has never been a big portion in our portfolio. Today is no different,” Rajah told ET Now.

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Recently LIC Chairman V K Sharma defended the state-run insurer’s investment in the tobacco major, saying that holding or not holding shares in the company had nothing to do with the issue of smoking.

A public interest litigation had been filed in the Bombay High Court in April against LIC and four other state-run general insurance companies for investing in cigarette makers, as tobacco is considered one of the biggest killers in India.

But with the GST Council raising the cess on cigarettes to take away an estimated Rs 5,000 crore annual ‘windfall’ from the manufacturers, LIC and other insurers are set to take a big hit in the notional value of its investment.

Following the GST announcement, the stock fell 15 per cent within a few minutes of trade on Tuesday to hit a low of Rs 276.90 on BSE, with its m-cap falling by over Rs 50,000 crore. ITC is the fourth largest stock in terms of market value.

Credit Suisse has downgraded ITC to neutral from outperform rating, while cutting the target price by 22 per cent to Rs 310 from Rs 400.

CLSA has downgraded this stock to sell rating (target Rs 285 from 417), saying the GST decision will force the company to hike prices sharply, which may impact volumes.

HSBC has maintained a hold rating on ITC, but said it will still manage to replicate the 15 per cent growth the company witnessed through last decade.

Morgan Stanley has downgraded the stock to equal weight with a new target price of Rs 285. The brokerage has cut ITC’s EPS estimate by 9-14 per cent for FY18-20.