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Life Insurance Corporation (LIC), India’s largest domestic institutional investor, increased its holdings in banking stocks in July- September even as the sector struggled with asset quality issues and low credit off-take. The state-owned insurer pared its stake in shares of information technology (IT) and pharma companies, which have been the favourties on Dalal Street of late because they are expected to benefit from a weaker rupee.
Market participants said LIC’s transactions in the quarter were in line with its broader strategy of mopping up battered shares and selling those which have performed.
A Business Standard study of 220 companies in which LIC owns stakes shows it raised stakes in bigger banks such as ICICI Bank, Yes Bank and State Bank of India among others during the quarter. The insurer has increased its shareholding in ICICI Bank and Yes Bank by 3% while in State Bank of India by 2.5%.
“LIC always tends to do bottom-fishing, particularly with beaten-down stocks,” said Gaurav Bhandari, senior vice president, Centrum Capital.
BSE’s banking index had fallen 7.5% in the first six months of 2013 (January-June) while the Sensex was more or less flat in this period. BSE’s IT index had risen 10%, while pharma index had gained 8.8% between January and June.
In IT sector, LIC sold shares of Infosys, Tech Mahindra, HCL Technologies. The maximum decline in share-holding has been in case of Tech Mahindra in which it has pared its stake by more than 4%, followed by Infosys at 1.7% and HCL Technologies at 1.1%. Among pharma stocks, the largest decline in share-holding has been in Lupin, Dishman Pharma and Biocon, where it has reduced stake by 0.9, 0.6 and 0.5% each.
Market men said that LIC had been increasing stake in the IT and pharma in the last one-year period. As valuations in these sectors have moved up, the insurer was now booking profits.
“Investors had been taking refuge in the IT and pharma stocks and this had pushed up valuations. So, they are now looking to exit at attractive valuations and booking profits for their investors,” said Lalit Thakkar, managing director – institution, Angel Broking.
LIC plans to invest about Rs 40,000 crore in domestic equities in 2013-14. Brokers said LIC satiates a large portion of the foreign institutional demand for Indian stocks.
“LIC is a long-term investor and looks at valuations from that perspective. The insurer generally takes a contrarian view wherein when FIIs 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 is not an active buyer or seller of equities as it likes to hold for the long-term. Most of the trading it indulges in is approach-based, they added.
“Typically, LIC is a net investor and continues to buy. They do not come and actively sell the stocks they own. There is usually a demand from a large institutional investor, say an FII, and LIC accordingly parts with its holding,” said the head of an Indian brokerage.
