A sharp recovery in equity markets from its March 2020 low has pushed the value of the equity portfolio of Life Insurance Corporation (LIC) by Rs 1.5 trillion since April. The insurer’s holdings in listed companies at the end of the March 2020 quarter stood at Rs 4.32 trillion, which is now valued at Rs 5.79 trillion, translating into a rise of Rs 1.47 trillion, or 34 per cent. Thus far in the financial year 2020-21 (FY21), the S&P BSE Sensex and the Nifty 50 have rallied around 30 per cent each.

The study is based on 351 companies’ data from Capitaline Plus, where LIC held over 1 percentage point stake in the June 2020 quarter. These companies accounted 72 per cent of total market capitalisation of BSE-listed companies.

A large part of the rise in LIC’s portfolio value is attributed to over 150 per cent jump in Reliance Industries (RIL) stock since March 2020 low. The stock accounted for an over one-fourth, or Rs 39,586 crore, of total insurer total gain during the period under review. LIC holds 5.87 per cent stake in the Mukesh Ambani-controlled company post the rights issue.

Information technology (IT) major Infosys, in which LIC has 7.19 per cent stake, added Rs 11,158 crore in its kitty. Besides, IDBI Bank where LIC is a promoter and holds 51 per cent added Rs 11,038 crore to the total gain. Tata Consultancy Services (TCS) added Rs 7,294 crore, while HDFC Bank, ITC, Mahindra & Mahindra (M&M), Housing Development Finance Corporation (HDFC) and Maruti Suzuki India have contributed between Rs 4,000 crore and Rs 5,000 crore in LIC’s portfolio value.

The sharp rally over the past few months has now made experts cautious on the road ahead for the markets. For all the positive momentum on the economy, one needs to remember that the pandemic is far from over, cautions Jyotivardhan Jaipuria, founder and managing director at Valentis Advisors.

“After a sharp rise in the Nifty from its lows in March, 2020 we are entering a correction and consolidation phase. From a medium-term outlook, we are still positive. If we look at our three key market driver model, (a) we are still at a low point of the earnings cycle and that will remain the primary driver for markets; (b) valuations are at fair value levels though no longer cheap; (c) trailing returns in equities are still poor and hence mean reversion is likely,” he says.

With moratorium in place, the actual asset quality trends for the financial sector, analysts say, would emerge only post the third quarter of the current financial year (Q3FY21). Banking sector (including NBFCs and HFCs), they believe, is likely to face near term headwinds on growth, asset quality and profitability.

Meanwhile, out of Nifty 50 companies, LIC has increased its stake in 28 companies by up to 1 percentage point (ppt). It, however, trimmed its holding in seven companies including Britannia Industries, Nestle India, Dr Reddy’s Laboratories, Cipla and Bajaj Auto by around 1 ppt each.

As a portfolio strategy, G Chokkalingam, founder and chief investment officer at Equinomics Research says investors can still stock up on defensives given the uncertainty around the Covid-19 pandemic despite the run up seen since March 2020 low.

“The stocks are running up in the expectation of good June quarter earnings. This cannot go on for too long. Reality will catch up soon and there will be a correction. Investors will be better off sticking to quality names in the defensive sectors – FMCG, IT and pharma – for now,” he says.