LIC bets big on auto growth story

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In a year marked by record sales of passenger vehicles, Life Insurance Corporation (along with its schemes and funds) increased its stake in all the three listed automobile companies: Maruti Suzuki, Tata Motors and Mahindra & Mahindra. The country's largest institutional investor also raised its stake in Hero MotoCorp.

The government-owned insurance firm has booked profit in Ashok Leyland and marginally brought down shareholding in TVS Motor and Bajaj Auto in the year ended March 31, 2016.

Interestingly, stock prices of all these companies, barring Tata Motors, have seen an appreciation in the year ended March 31. Significant appreciation has happened in Ashok Leyland (47.6 per cent), TVS Motor (22.33 per cent) and Bajaj Auto (19.26 per cent). The rest have seen single-digit gains. LIC's decision to reduce stake in Ashok Leyland and TVS Motor is in line with the sharp run seen in both these stocks. "LIC has booked profits after the run-up in these stocks," said S P Tulsian, an investment advisor.

Tata Motors' stock declined 30 per cent during the year, mainly impacted by over poor performance of Jaguar Land Rover (JLR). The declining trend has been now reversed with the growth in JLR sales. No wonder that LIC's stake in the company has more than doubled to 3.28 per cent in FY16.

Private insurer ICICI Prudential has also increased stake in Tata Motors to 2.29 per cent from 1.46 per cent in the said period. Overseas portfolio investors like Abu Dhabi Investment Authority (ADIA) and the government of Singapore have also invested in the stock.

LIC has increased its stake in Maruti Suzuki, the country's largest carmaker, to 6.50 per cent as on March 31, 2016, from 5.94 per cent a year ago. The value of 6.50 per cent stake as on Friday closing was Rs 7,451 crore. "Even though Maruti's stock has corrected in recent months, it is unlikely to fall further. LIC takes a long-term horizon and is always a true investor that does value-buying," said Tulisan. In Maruti's case also, foreign portfolio investors like ADIA and Europacific Growth Fund have increased investment in the stock.

The most interesting change in LIC's automobile holding is probably in case of Hero MotoCorp, the country's largest two-wheeler maker. The company has seen challenging times as far as volumes are concerned for two consecutive years, owing to a sub normal rainfall in the past two years that impacted motorcycle demand in rural markets.

LIC has raised its holding in the company from 3.58 per cent as on March 2015 to 6.41 per cent in March 2016.

Hero's stock has surged in the past few weeks on forecast of an above normal rainfall this year. "A good monsoon augurs well for Hero MotoCorp," said Tulsian. The monsoon will also benefit Mahindra, the country's largest tractor and utility vehicle player.

Analysts also say there is a lack of good investment opportunities in the equity market. "Metal- and commodity-based stocks have not delivered in recent years. But, the automobile consumption growth story is strong. A good monsoon can help the car and two-wheeler industry post a growth close to double digit," said Saurabh Jain, assistant vice-president (fundamental research) at SMC Global Securities.

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