LIC cuts exposure to banks, auto in Q3

The insurer raises stake in utilities, said BofA ML

Life Insurance Corp (LIC) sold banks, auto and drug-makers in the October-December quarter, while bought utilities, said a Bank of America Merrill Lynch report said. LIC along with domestic mutual funds have been selling stocks even as foreign institutional investors have been buying aggressively.

LIC, the country’s largest domestic institutional investor, sold financial stocks such as Axis Bank, HDFC Bank, ICICI Bank, HDFC and SBI to the tune of about $1.5 billion. In automobile sector, the insurer sold stocks  such as Mahindra & Mahindra, Tata Motors and Maturi Suzuki worth about $368 million, while it offloaded Sun Pharma, Dr.Reddy’s and Cipla among drugmakers to the tune of $325 million during the quarter, according to BofA Merrill Lynch.

LIC’s selling comes as foreign institutional investors (FII)’s stake in companies on the Sensex rose to a five-year high. Brokers said LIC follows the contrarian style of investing; sell on rise and buy on dips. In 2012, benchmark indices rose about 25 percent led by foreign institutional inflows to the tune of $25 billion.

LIC bought shares in the utilities sector such as Reliance Power and Power Grid during the quarter which were yet to catch investors’ fancy.

While LIC sold, foreign institutional investors were buying financials and auto shares. The overseas investors’ interest in software exporters and consumer goods companies was muted, said BofA Merrill Lynch.

“Rising weight of financials in MSCI has led to fall in the O/W (overweight) which is now at the lowest level in five years even as it continues to be the biggest O/W sector for them,” the investment bank said. “On the other hand, heavy buying coupled with MSCI changes has made Autos a significant O/W sector now which is highest in last five years,” it said.