Taking advantage of the sharp fall in banking and financial services stocks, Life Corporation of India (LIC) has added to its exposure in the sector during the first nine months of the 2015-16 financial year.
Data from Capitaline show that the life insurer has increased its stake in eight banks in the last three quarters, including State Bank of India (SBI), ICICI Bank, HDFC bank and Bank of Baroda.
The life insurer has chosen to increase its exposure to the sector at a time when stock prices of listed players have fallen in the range of 15% to 50%.
A senior LIC official on the condition of anonymity told FE that LIC would continue to buy banking shares as compelling valuations of the banks offer good investment opportunity. “LIC invests from long term perspective. The banking stocks might have performed poorly in the last few months but in the longer horizon of five to seven years these shares have yielded good returns,” the official said.
The decline in shares has been attributed to the deteriorating asset quality at these banks and the fact that the central bank has asked them to step up provisioning requirements.
Unlike their pubic sector peers, which have consistently lost their market value in the last two years, the fall in share prices of both ICICI Bank and Axis Bank intensified in the last two quarters on account of below expectation earnings and fall in asset quality.
For instance, shares of ICICI Bank, India’s largest private lender, have lost close to 40% since the beginning of FY16 as the gross NPAs of India’s largest private bank ICICI increased by more than Rs 6,000 crore to R21,149 crore during the period while shares of Axis Bank have declined nearly 35% in the fiscal so far.
LIC reduced its stake in HDFC Bank by 42 basis points in 9MFY16, when shares of the second biggest private lender gained 0.32% during the period. The state owned insurance company has also bought a fresh stake of about 1% in Mahindra & Mahindra Finance in the period in which the stock has lost 20% of its value.