Insurance behemoth LIC lapped up shares of banks and offloaded shares of top FMCG and pharma firms during the first quarter of financial year 2014.
Analysis of 59 of the BSE 100 firms that have disclosed their shareholding pattern for the three months to June so far shows that 20 firms saw an increase in LIC holding compared with 26 that saw a decline. The top 3 firms that saw the most rise in LIC holdings include Ambuja Cement (1.76%), Cairn India (1.15%) and Wipro (1.1%).
?LIC typically buys aggressively whenever the market tanks or there is widespread panic. They tend to buy stocks that may have corrected 40-50%, but still hold enough value. It’s a strategy that has worked well for them in the past,? said AK Prabhakar, senior VP ? equity research, Anand Rathi Financial Services.
Infosys seemed to be a major beneficiary of this strategy. LIC upped its stake in Infosys by 0.76% at a time when most analysts were sceptical about the company’s prospects following its fourth quarter results that showed a weak topline growth and continued pressure on operating profits.
The firm?s FY14 guidance was below analyst expectations as well. The comeback of Infosys co-founder NR Narayana Murthy as executive chairman in June may have also spurred the insurer’s decision to up its stake in the firm.
Within the banking space, the insurance major upped its holding significantly in public sector banks SBI (0.91%) and Bank of Baroda (0.26%). The stocks had fallen 5.7% and 15.2%, respectively during the quarter. Private lenders ICICI Bank (0.29%) and Axis Bank (0.09%) also saw a rise in
LIC holdings.
LIC cut its holding in pharma and FMCG stocks. In Hindustan Unilever, where LIC may have tendered a part of its shares in the open offer by parent Unilver, LIC’s holding slipped -0.33%.
Holdings in Asian Paints (0.32%), Tata Global Beverages (-0.12%) and Colgate Palmolive (-0.06%) also came down. Among pharma firms, Lupin (-0.4%) and Dr Reddy’s Laboratories (-1.34%) saw a sizeable reduction in LIC holding during the quarter.
Shares of HUL, Lupin and Dr Reddy?s Laboratories rose 25.5%, 24% and 25.4%, respectively in the 3-month period. According to Prabhakar, FMCG and pharma companies have become expensive as their valuations have run up substantially in the past
few months.
Some of these stocks are trading at as high as 35-45 times their current earnings. LIC plans to invest about R40,000 crore in Indian equities in FY14. Banking, FMCG, Metals and Oil&Gas are some of the sectors currently favoured by the insurance major.
LIC was believed to be at the forefront of buying activity in the month of June and is estimated to have picked up shares worth about R 3,000 crore. Domestic institutional investors (DIIs) had turned net buyers in June after eleven months of sustained selling. In June, DIIs purchased shares worth R8,427 crore in June compared to net sales of R6,322 crore in the April-June period.
