LIC rakes in record $4.7 billion from share sales amid market surge in Q3

According to a Mint study based on regulatory filings, the state-run insurer sold part of its investments in at least 100 top listed companies, which, based on volume-weighted average price for the October-December period, adds up to ₹39,163 crore—the highest ever in the third quarter of a financial year.

“Most stocks that were sold during the quarter by LIC were at their highest ever price levels, which means the actual value of the share sale by LIC could be far higher than even ₹50,000 crore," said a person aware of the developments at LIC.

At ₹39,163 crore, LIC has raked in 31% more money from shares of Indian companies in the December quarter of FY24, compared to ₹29,900 crore in the same quarter a year ago.

This happened as the BSE’s 30-share Sensex surpassed its highest 72,000 level, rising more than 10% from October to December, propelled by cooling inflation in the US, hopes of a rate cut, continuous decline in US bond yields and the dollar, and consistent purchase of Indian stocks by foreign portfolio investors (FPIs).

Typically, whenever LIC, the largest domestic institutional investor, sells shares in bulk, FPIs and mutual funds tend to be net heavy buyers, which often prevents the market from a drastic fall.

During the December quarter, the market maintained its bull run despite significant share sale by LIC with domestic mutual funds and foreign investors buying shares totalling ₹61,527 crore and ₹50,588 crore, respectively.

LIC’s substantial share sale could offer improved return on investments made by the company’s life insurance policyholders in the long term. However, in the short term, such a move by LIC often serves as a market guidance for many small investors and fund managers in view of the scale of its investments, said experts.

“LIC’s sales likely seem to be profit-taking after the stock’s strong gains while also rebalancing its portfolio. For policyholders, it signals LIC’s prudence in securing profits. For the market, it provides caution on its valuations. The stake sales are likely to put pressure on the broader market and specific stocks sold. But the impact seems limited, supported by strong fundamentals of the companies and sales as a small fraction of market activity," said Atul Parakh, the chief executive officer at Bigul, an online investment and trading firm.

LIC, according to the people cited above, follows a contrarian investment strategy, selling the shares at highs and buying at dips, differing from the conventional approach of most investors. In the December quarter, the markets were particularly bullish despite only modest year-on-year corporate earnings growth. To date, at least 1,779 BSE-listed firms (excluding 294 firms in the banking, financial services, and insurance sector) have reported their Q3 results, with overall revenues increasing by 10.95% year-on-year and net profits surging by 25.08%.Therefore, LIC’s decision to sell shares seems to be influenced by the market prices rather than financial growth parameters.

LIC, the data suggests, has sold shares mostly in sectors including financial services, pharmaceuticals, automobiles, metals & mining and technology. And within these sectors, LIC’s sales are particularly higher in those companies which recorded their lifetime high price levels.

The companies in which LIC sold the most during December quarter include Hindalco ( ₹2,541 crore), Adani Ports ( ₹2,290 crore), ICICI Bank ( ₹2,188 crore), Dr Reddy’s Laboratories ( ₹2,019 crore), Tata Motors ( ₹1,837 crore), Bajaj Auto ( ₹1,721 crore), Shriram Finance ( ₹1,637 crore), HDFC AMC ( ₹1,617 crore), Hero MotoCorp ( ₹1,593 crore), and HCL Technologies ( ₹1,455 crore).

A closer analysis by Mint revealed that during the December quarter all these 10 companies were hovering at their highest ever price levels when LIC sold sold them.

With stocks of most of the large listed firms rising steadily during the December quarter, LIC has also gained by selling shares in HCL Tech ( ₹1,455 crore), Lupin Ltd ( ₹1,154 crore), Bharti Airtel ( ₹921 crore), Aurobindo Pharma ( ₹917 crore) and Dixon Tech ( ₹886 crore).

Further, LIC has pared bulk of its holdings in Adani Enterprises, Coal India, GAIL, JSW Steel, Canara Bank and Wipro, according to the Mint research.

“As a part of the investment strategy and fund objective LIC does some kind of profit booking and reduce the exposure in some companies, given the kind of opportunity in the other companies, in medium term " said Kranthi Bathini, Director of Equity Strategy at Wealth Mills Securities Pvt Ltd told Mint.

Hindalco has delivered a strong performance in the December quarter, with a return of 24.8%. Looking at its valuation, Hindalco’s FY2024 P/E ratio of 11.06 times is significantly lower than its peers. For instance, JSW Steel’s P/E ratio is 18, Tata Steel’s is 40, and Vedanta’s is 17. This suggests that LIC has offloaded a part of Hindalco shares even though the company is somewhat undervalued compared to its peers.

“The ongoing internally funded growth capex means Hindalco’s earnings should likely accelerate from FY26, we see the stock trading in a wide range as the macro outlook (LME aluminum, US consumer demand in autos, cans) drives the stock price over the next 12-18 months. Overall, we are positive on the stock price at current levels and believe a combination of improving Novelis earnings and India upstream earnings with steady to higher LME prices should be supportive for the stock price," said analyst at JP Morgan report on 30 August.

Adani Ports reported a 65% year-on-year rise in its consolidated net profit at ₹2,208 crore in Q3FY2024 as compared to a net profit of ₹1,336.51 crore posted in Q3FY2023 and the company’s consolidated revenue from operations surged to ₹6,920.10 crore in Q3 from ₹4,786.17 crore in the year-ago quarter, which is an increase of 44.58% y-o-y, delivered a strong performance in the December quarter, with a return of 24.1% and It also reached a new all-time high of ₹1,102 on 12 December, 2023. This means LIC has trimmed its holding in the flagship Adani Group firm even though its numbers may point towards a healthier financial growth in the coming days.

JM Financial raise Adani Ports estimates by 3-5% to reflect the Q3 FY2024 performance and improved outlook. “We value Adani Ports at 16 times EV/Ebitda (10% premium to its 3-year median of 14.5x to reflect optimism on growth prospects) and roll forward to Mar’25 target price of ₹1,430 apiece," said analysts JM Financial report on 2 February.

Similarly, private lender ICICI Bank Ltd. reported a 23.5% year-on-year rise in net profit at ₹10, 272 crore, compared to ₹8,312 crore in the year-ago period, and net interest income (NII) increased by 13.4% to ₹18,678 crore in the December quarter from ₹16,465 crore in the corresponding period last year, It also reached a new all-time high of ₹1,043.7 on 15 December, 2023.

“ICICI Bank has been the exception in the current earnings season, delivering a beat with 3Q PAT ( ₹103bn; +26% y/y; ROE: 18.6%) printing 4% ahead of estimates driven by lower provisions – despite a one-off hit on AIF provision. Core PPOP (+10% y/y ) was in-line with expectations with loan / deposit growth of 18% / 19% y/y. Core NIMs were down 14bps q/q on deposit repricing," said analysts JP Morgan on 21 January.

Tata Motors reported 137.5% year-on-year in consolidated net profit ₹7,025.11 crore, compared to ₹2,958 crore in the year-ago period, riven by strong sales in its British luxury car unit, Jaguar Land Rover (JLR). Total revenue from operations in the third quarter rose 25% to ₹110,577 crore, compared to ₹88,488.59 crore, led by JLR’s revenue in the December quarter rose 22% to £7.4 billion.

“We like Tata Motors’ given it’s improving India franchise, early leadership in EVs in India, and JLR’s improved profitability. Standalone business is in mid-upcycle both in PV and CV whereas favorable product cycle to help drive JLR outperformance," said analysts YES Securities on 2 February.

Dr Reddy’s Laboratories reported a 10.6% year-on-year rise in in net profit at ₹1,379 crore, compared to ₹1,247 crore in the year-ago period. The rise in profit was driven by higher market share in existing products in North America and growth in Europe, the company reached a new all-time high of ₹5890.80 on 28 December, 2023. Looking at its valuation, Dr Reddy’s FY2024 P/E ratio of 19.4 times is significantly lower than its peers. For instance, Sun Pharma P/E ratio is 39, Lupin is 38, and Glenmark is 25.6.

“Dr Reddy’s strong 3QFY24 performance was driven by growth in US & EU markets (~9% Y/Y / ~15% Y/Y respectively), while U.S. generic pricing moderation continued," said analysts Barclays on 30 January.

Bajaj Auto reported 37% year-on-year rise in net profit in Q3 FY2024 compared to ₹1,491 crore in the year-ago period. The company’s revenue from operations jumped 30.1% to ₹12,114 crore due to acceleration of the domestic business, which on the back of sharp execution and impactful activation during the festive season. It also reached a new all-time high of ₹6,833.95 on 29 December, 2023.

Hero MotoCorp reported a 51% year-on-year rise in the net profit to ₹1,073.4 crore and Revenue from operations grew by 21% year-on-year to ₹9,724 crore. Stock has delivery 35.4% return during December quarter.

“Healthy inventory levels and easier financing keep us constructive. However, Hero/Bajaj/TVS also rallied 50-90% during 2023. We prefer Bajaj (OW) and Hero (OW) due to a combination of potential earnings/market-share surprises and relative valuation cushion," said analyst JP Morgan on 12 January.

HCL Technologies reported a 13.5% Q-o-Q rise in its consolidated net profit to ₹4,350 crore in Q3 FY24 against ₹3832 crore in Q2FY24. The company’s revenue increased by 6.65% Q-o-Q to ₹28,446 crore.

“We believe HCL Tech is well-equipped to maintain its growth leadership among large peers in the medium term given the diversified portfolio that is well-aligned to growth areas and strong execution," said analyst Sharekhan on 12 January.

The Mint research shows that during the October-December period, LIC bought stakes worth ₹32,000 crore in 66 listed companies, including Hindustan Unilever ( ₹3,343 crore) Britannia Ind ( ₹2,740 crore), Infosys ( ₹2,679 crore), HDFC Bank ( ₹1,971 crore) Asian paints ( ₹1,565 crore), Bank of Baroda ( ₹1,516 crore), Bajaj Finserv ( ₹1,295 crore), Maruti Suzuki ( ₹1,223 crore), SBI ( ₹1,024 crore) and Power Grid ( ₹918 crore).

LIC is the country’s largest life insurer. The company saw a 49% year-on-year increase in net profit in Q3 FY2024 at ₹9,444.4 crore compared to ₹6,334.2 crore last year same period due to increase in net income from investment and growth in net premium income.

The company’s net premium income grew by 4.6% to ₹1.17 trillion during the December quarter as compared to ₹1.11 trillion in Q3 of FY2023.