LIC swims against tide, raises bank holdings

Cuts exposure to IT and pharma, as valuations in these sectors have risen

In the quarter ended September, Life Insurance Corporation (LIC), India's largest domestic institutional investor, increased its holdings in banking stocks, even as the sector struggled with asset quality issues and low credit off-take. The state-owned insurer cut its stakes in information technology (IT) and pharmaceutical companies, Dalal Street's favourites of late, as these are expected to benefit from a weaker rupee.

Market participants said LIC's transactions during the quarter were in line with the company's broader strategy of mopping up battered shares and selling those that had performed.

A Business Standard study of 220 companies in which LIC owned stakes showed during the quarter, the insurer had raised stakes in major banks such as ICICI Bank, YES Bank and State Bank of India (SBI). It increased its stakes in ICICI Bank and YES Bank three per cent each; in SBI, it raised its stake 2.5 per cent.

"LIC always tends to do bottom-fishing, particularly with beaten-down stocks," said Gaurav Bhandari, senior vice-president, Centrum Capital.

The BSE banking index has fallen 7.5 per cent in the first six months of 2013 (January-June); during this period, the Sensex was more or less. The BSE IT index rose 10 per cent, while the pharmaceutical index gained 8.8 per cent.

In the IT sector, LIC sold shares of Infosys, Tech Mahindra and HCL Technologies. The steepest fall in LIC's shareholding was seen in the case of Tech Mahindra, in which the insurer cut its stake about four per cent, followed by Infosys (1.7 per cent) and HCL Technologies (1.1 per cent). Among pharmaceutical stocks, the steepest decline was seen in the case of Lupin, Dishman Pharma and Biocon; in these companies, it reduced stake 0.9, 0.6 and 0.5 per cent, respectively.

Market participants said LIC had been increasing stake in IT and pharmaceutical companies through the past year. As valuations in these sectors had risen, the insurer was now booking profits. "Investors had been taking refuge in IT and pharma stocks and this had pushed up valuations. So, they are now looking to exit at attractive valuations and booking profits for investors," said Lalit Thakkar, managing director (institution), Angel Broking.

This financial year, LIC plans to invest about Rs 40,000 crore in domestic equities. Brokers said LIC had satiated a large portion of the foreign institutional demand for Indian stocks. "LIC is a long-term investor and looks at valuations from that perspective. Generally, the insurer takes a contrarian view---where when foreign institutional investors are seen selling in a particular sector, it is seen increasing its exposure to that sector, providing substantial domestic support to the market," said Sonam H Udasi, head of research at IDBI Capital.

However, some brokers said LIC wasn't an active buyer or seller of equities, as it liked to hold on for the long term. Most of its trading was approach-based, they added. "Typically, LIC is a net investor and continues to buy. It doesn't actively sell stocks on its own. Usually, there is a demand from a large institutional investor, say a foreign institutional investor, and accordingly, LIC parts with its holding," said the head of a brokerage.