Change in investment strategy? LIC sells big names, buys into minnows
The insurance behemoth invested in some lesser-known companies through the quarter even as it exited form well-known names, in what looked like a game-changing strategy by the countrys largest institutional investor.
The public sector insurer has seen its portfolio underperform the benchmark BSE Sensex index over the past year, mainly because of investments it had made over the years in some weak public sector companies every time the government went for share sale.
LIC was busy shopping all through the April-June period, as the broader market witnessed a lot of weakness and stocks across sectors slipped to attractive valuations.
The insurer bought shares from across sectors, including banks, rating agencies, logistics, metals and mining, cement, oil marketing companies, power as well as chemicals.
What really surprised analysts and markets watchers was sudden appearance of its name among shareholders of lesser-known companies such as Paisalo Digital and Williamson Magor.
The insurers name did not figure among the major shareholders of these companies at the end of the previous quarter.
Paisalo Digital, formerly SE Investments, is a non-deposit taking non-banking financial company. Williamson Magor is also an NBFC and its business activities include investments, lending and providing rent, maintenance and management consultancy services.
LIC also held over 2 per cent stake in Federal-Mogul Goetze (India) and GSK Consumer Health at the end of June. It was not among the key shareholders at the end of previous quarter.
On the other hand, the insurer reduced its holding in more than 30 firms during the quarter, including some key names such as Nalco, Tata Power, Uco Bank, Allahabad Bank and even IDBI Bank, the PSU lender it now plans to buy out.
The Indian Hotels, Bata India and Ambuja Cement also witnessed a significant drop in LICs shareholding at the end of June.
The insurance behemoth increased its holding in State Bank of India, the countrys biggest lender by assets, to 10.23 per cent at the end of June from 10 per cent at the end of March quarter.
It also lapped up shares in two-wheeler major Hero MotoCorp, raising its stake to 6.36 per cent from 3.5 per cent. Hero MotoCorp has increased its lead over rival Honda Motorcycle and Scooter India (HMSI) in the first quarter of this financial year.
Data released by the Society of Indian Automobile Manufacturers (SIAM) showed Hero MotoCorp sold 20,60,342 bikes and scooters during the April-June period compared with 16,90,423 units sold by HMSI.
In the April-June quarter of last financial year, Hero had sold 18,11,343 units compared with 14,78,478 units for HMSI. Hero MotoCorp is also among top picks of HDFC Securities in auto OEM space.
LIC also bought shares in HCL Technologies, Hindustan Unilever, Hindustan Petroleum Corporation and Ultratech Cement.
HUL last week posted a 19.17 per cent rise in June quarter net profit at Rs 1,529 crore on strong volume growth and sustained margin improvement. The company had posted Rs 1,283 crore profit for the April-June period a year-ago.
Some brokerages have raised target prices for the FMCG stock following June quarter earnings, while others have downgraded it, citing expensive valuations.
Top brokerages such as CLSA, Edelweiss, HSBC, ICICIdirect and Motilal Oswal have increased target price on the stock by 4-18 per cent. However, Antique Stock Broking, Nomura and Jefferies have downgraded it.
UltraTech Cement on Wednesday beat Street estimates and reported Rs 598 crore profit for June quarter.
HCL Technologies on July 18 said it has completed a $330 million acquisition of US-based Actian Corporation in partnership with Sumeru Equity Partners (SEP).
In a filing, it said through this deal HCL Tech will “own high margin, recurring revenue IP business in data analytics, integration and management products.”
Credit Suisse and Morgan Stanley have outperform rating on the stock, with price targets of Rs 1,175 and Rs 1,060, respectively.
In all, LIC hiked stakes in over 25 companies in Q1, data available with Ace Equity till July 17 showed. The insurance behemoth has stakes in more than 250 companies listed on the National Stock Exchange (NSE).
The insurance firm hogged limelight this month after it announced plans to enter the banking space by buying a controlling stake in the debt-stressed IDBI Bank. It currently holds 7.98 per cent in the bank compared with 10.82 per cent as on March 31, 2018.