LIC cuts exposure to banks, autos in Q3; raises stake in utilities: BofA-ML

Life Insurance Corporation of India (LIC) sold stocks of banks, automobiles and drug makers in the October-December quarter, while it bought utilities, said a Bank of America Merrill Lynch (BofA-ML) report. LIC and domestic mutual funds have been selling stocks, even as foreign institutional investors (FIIs) have been buying aggressively.

LIC, the country’s largest domestic institutional investor, sold financial stocks such as Axis Bank, HDFC Bank, ICICI Bank, State Bank of India and Housing Development Finance Corporation to the tune of about $1.5 billion (Rs 8,115 crore). In the automobile sector, it sold Mahindra & Mahindra, Tata Motors and Maruti Suzuki worth about $368 million (Rs 1,990 crore). And, offloaded Sun Pharma, Dr Reddy’s and Cipla among drug makers to the tune of $325 mn (Rs 1,760 crore) during the quarter, said BofA-ML.

LIC’s selling comes as FIIs’ stake in companies on the Sensex rose to a five-year high. Brokers said LIC follows a contrarian style of investing — sell on rise and buy on dips. In 2012, the benchmark indices rose about 25 per cent, led by foreign institutional inflows of $25 bn (Rs 1.35 lakh crore).

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, FIIs were buying financials and automobile shares. Foreign investors’ interest in software exporters and consumer goods companies was muted, said BofA-ML.

“The rising weight of financials in (the) MSCI (Index) has led to a fall in the O/W (overweight), 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, highest in the last five years,” it said.