LIC goes shopping, doubles stake in SBI

The 'big bull' of the Indian equity market, state-owned Life Insurance Corporation (LIC), has gone on a value hunt in the rock-bottom stocks market, lending support to blue chip banking stocks. LIC, India's largest institutional investor, has raised its stake in most Indian banks over the last four months.
On Monday, LIC informed the Bombay Stock Exchange (^BSESN) that it has raised its stake in the country's largest bank, State Bank of India (SBIN.NS), to 9.16%, from 4.58% in December 2008 nearly doubling the stake in a space of less than three months.
LIC said it acquired 1.34 crore shares, representing 2.11% equity of the State Bank, for Rs 1,484.12 crore on Monday. It said the remaining shares were bought through open market transactions between November 2008 and March 2, 2009.
The corporation continues to provide support to the banking sector stocks each time they slip, say analysts.
The Bombay Stock Exchanges' banking index, the Bankex, was up 2.86% on Monday to 4,087.39 points, on a day when the benchmark Sensex rose 2.2% to 8,943.54 points, and the Nifty (^NSEI) of the National Stock Exchange gained 2.11% to end at 2,776.65 points.
"Most banking stocks are trading at their near or below book value levels and that present a tremendous growth opportunity for the insurance company. When the India story gets on track again, these stocks will have a bull run," says a fund manager with a leading domestic mutual fund. "Also, many the leading banks have subsidiaries, whose value, is not reflected on the books fully. And when these are sold off, they will unlock tremendous potential," he added.
But foreign institutional investors are less bullish on the stock. The FII shareholding in SBI has come down to 10.42% in December 2008 from 12.35% in December 2007.
LIC has also been buying heavily into the ICICI Bank (ICICIBANK.NS) stock. On February 23, LIC had raised its stake in India's largest private sector lender to 9.38%, by purchasing 2.27 crore shares. Currently LIC, which is a promoter of the ICICI Bank, holds over 10.44 crore shares, representing 9.38% stake in the bank.
Both SBI and ICICI Bank have strong subsidiaries in the insurance, broking and mutual funds businesses, the value of which can be unlocked when the cycle turns again, reckon others. Banking stocks have remained a favourite of the insurer. Also, in many ways, the cash-rich institution acts as a support to the markets when it buys at dips. It is reckoned that LIC gets substantial investible funds at the end of the year, when many investors tend to complete their taxation obligations this time and the premium collection rises.
LIC holds almost close to 26.32% of Corporation Bank. LIC has in recent times increased its stake in public sector banks like Allahabad Bank (up 4.60 %), Oriental Bank of Commerce (ORIENTBAN.NS) (2.60 %), Syndicate Bank (2.32 %), Union Bank of India (UNIONBANK.NS) (2.18 %t), Bank of India (1.63 %), Indian Overseas Bank (IOB.NS) (1.59 %), Bank of Baroda (1.53 %), Canara Bank (1.21 %) and Punjab National Bank (0.38 %).
LIC's stake in Oriental Bank of Commerce and Allahabad Bank rose to 16.02% and 10.99 %, respectively. Its holding in HDFC Bank rose by 0.37% to 5.07 %.
However, LIC has always maintained that except in Corporation Bank, its holdings in other banks are purely financial investment. Also, the corporation is currently in dialogue with the insurance regulator, Insurance Regulatory and Development Authority (Irda), about the regulator's latest set of investment norms that no insurers will be permitted to hold more than 10% in any company. Going by the new regulations , LIC will be prohibited from picking up a stake larger than 10% in a company. However Irda is yet to take a final stand on this issue vis- -vis LIC. For now, LIC remains free to expand its stake in any company beyond the 10% limit.