LIC reshuffles stake in automobile companies

Over the past 12 months till end-June, has been booking profit in stocks that have risen well and raised stake in scrips that haven't but have potential

Life Insurance Corpor-ation (LIC), the country’s largest institutional investor, is reorganising its investment in automobile companies.

The government-owned giant is booking profits in stocks like Maruti Suzuki and Ashok Leyland that have seen significant appreciation. It has also raised its stake in stocks like Tata Motors and Hero MotoCorp that have underperformed.

The value of LIC’s stake in seven automobile companies appreciated by 25 per cent or Rs 6,200 crore to Rs 30,799 crore in the year ending June. Some of these gains, however, were lost in the market’s recent southward movement.

LIC booked profit in Maruti Suzuki by trimming its stake from 6.63 per cent on June 30, 2014, to 5.7 per cent as of

June 30 this year. However, with the nearly 70 per cent surge in the stock price of the country’s largest car maker, the value of LIC's stake has moved up from Rs 5,418 crore to Rs 7,881 crore. It also booked a profit in commercial vehicle maker Ashok Leyland, whose stock rose 180 per cent in the year ending June. And, in TVS Motor, whose stock gained 28 per cent.

Maruti’s stock has appreciated on factors like double-digit growth in vehicle sales, improved profitability due to stable input prices and low royalty outgo to parent company Suzuki, due to a weaker yen. Leyland’s share price also rose on improved profitability and demand for commercial vehicles. The profit booking comes at a time when many brokerages have a ‘Buy’ call on both Maruti and Leyland.

“Profit booking is the mantra for survival in the current market situation. LIC is following the right strategy by booking profit in Maruti and Leyland,” said S P Tulsian, an independent investment advisor.

It has also raised stake in companies whose stock price has declined or seen a much lower appreciation compared to Maruti or Leyland. In Tata Motors, whose stock price slipped 30 per cent in the 12 months ended June, it has increased stake from 3.73 to 4.15 per cent. Even so, the value of LIC’s holding in the company came down to Rs 4,203 crore in June 2015 from Rs 5,088 crore in June 2014. The stock has since slipped further.

“LIC has booked profits in stocks that have given good returns and invested in those that have underperformed but have attractive valuations,” said Ashvin Shetty, an automobile analyst with Ambit Capital.



LIC can stay invested for a much longer duration then most other institutional investors. And, there is no short-term redemption pressure. The money it earns through premiums can be invested for the long term.

The share price of Mahindra & Mahindra, another company where LIC has raised its stake, has been under pressure for months due to declining tractor and passenger vehicle sales. Stocks of both two-wheeler stocks where LIC has raised its stake, Hero MotoCorp and Bajaj Auto, have also underperformed as domestic two-wheeler demand has remained subdued. One big reason is the rural economy -- the rabi or winter crop in several states was impacted due to unseasonal rain in March-April and hope of a good kharif harvest is also unlikely due to deficient rain, especially in Maharashtra, Karnataka, Haryana, Punjab and Uttar Pradesh.