NEW DELHI/MUMBAI India is to allow state-run Life Insurance Corp (LIC) to triple the maximum stake it can hold in other companies to 30 percent in a move seen as helping a government sell-off of its own holdings in a range of firms.
India plans to raise 300 billion rupees via share sales in private companies by the end of March next year, a crucial part of efforts to contain a widening fiscal deficit.
The government said on Wednesday it would kick off sales by offloading a stake in Hindustan Copper (HCPR.NS) on Friday and in two more state companies by next month.
A market rally earlier this year has stalled and analysts said the government may be looking to LIC to support asset prices as it targets a budget deficit of 5.3 percent of gross domestic product this financial year.
India's largest insurer has previously bailed out the government in share sales that failed to generate sufficient demand, including buying most of the shares in a $2.6 billion stock auction from Oil and Natural Gas Corp (ONGC.NS) in March.
"The government needs money, markets are not supportive, time is running out, valuations are not attractive for the government," said Mehraboon Irani, the head of private client group at brokerage Nirmal Bang.
Irani said LIC could potentially buy shares in companies at higher prices than would be acceptable to markets.
Standard & Poor's and Fitch Ratings cut India's sovereign ratings outlook to 'negative' this year, putting the country at risk of losing its investment grade category.
Pressure on the government has grown after an auction of second-generation mobile phone licences this month attracted just a quarter of the targeted amount.
Last month it dropped plans to list steel maker Rashtriya Ispat Nigam after disagreements over pricing with investment bankers.
Increasing the amount that LIC can hold in companies was expected since the insurer already owns stakes above 10 percent in some firms including state-run State Bank of India (SBI.NS).
Mohd. Haleem Khan, India's secretary at the department of disinvestment, said the government would sell a 4 percent stake in Hindustan Copper, valued at nearly 9 billion rupees at current market prices, through an auction.
New Delhi also plans to sell stakes in miner NMDC Ltd (NMDC.NS) and explorer Oil India (OILI.NS) before December 20, Khan told reporters.
India's benchmark BSE index .BSESN has fallen 1.6 percent since the start of October, hit by a weaker global markets and worries about the country's ability to pass fiscal and economic reforms, but is still up 19.5 percent this year.
"It is definitely positive for the market and the government," said G. Chokkalingam, Chief Investment Officer at Centrum Wealth Management.
"Pressure on the market will come down," he also said, referring to market worries of big shares hitting the market.
LIC's investment income, which comes mainly from equities, has grown from about 322 billion rupees in the year ended March 2006 to 777 billion five years later. (Additional reporting by Abhishek Vishnoi, Manoj Dharra, and Sumeet Chatterjee in MUMBAI; Editing by David Cowell)