Top 5 Midcap Stocks Held by LIC

Midcap stocks have outperformed the benchmark indices in 2023.

These high growth companies are often looked at by institutions based on factors like liquidity and valuations.

Currently, the wind is flowing towards midcaps and smallcaps as compared to largecaps as the euphoria in broader market is still building up.

In continuation to the series of articles we covered around LIC's top holdings, let's look at the insurance behemoth's top midcap picks today.

In case you haven't read our previous articles, you can check them out here:

• LIC’s top smallcap stock picks
• LIC’s top penny stock picks
• LIC’s top microcap stock picks

Let's start with LIC's housing finance arm in which it has over 45% stake!

#1 LIC Housing Finance

LIC Housing Finance (LICHFL) is among the country's oldest housing finance companies.

Incorporated in 1989, the company is promoted by the state-owned Life Insurance Corporation (LIC) of India.

LIC is the country's biggest insurance provider and enjoys significant brand recognition and trust. LICHFL benefits from its strong parentage and enjoys a strong brand recall among Indian consumers.

Moreover, the association with LIC further adds on to the reliability with respect to the custody of documents until such time that the property remains mortgaged during the loan tenure.

Besides lending its brand power to the company, LIC also plays a major role in mobilising its large agent network for LICHFL's use.

LIC's backing has not only enabled LICHFL to use the latter's huge agent network to originate loans but also to source funds at competitive rates.

As the housing finance company enjoys the parentage of LIC, it is able to raise funds at cheaper rates due to strong credit ratings accorded to its borrowing programs.

As of September 2023, LIC holds 45.2% stake in the company. This promoter holding has remained constant over the years.

Mutual funds have also taken quite a fancy to the stock as they loaded up on LIC Housing Finance shares for seven consecutive quarters, before paring some stake in the most recent quarter.

The share price of LIC Housing Finance is currently trading very close to its 52-week high of Rs 481.

The optimism surrounding the stock could be attributed to strong Q2 results posted by the housing finance company.

LIC Housing's recent earnings got a major boost on the back of healthy demand for housing loans.

The company's profit after tax more-than-tripled to Rs 11.9 bn as compared to a year-ago period.

Following several interest rate hikes, India has kept its key lending rates steady since February this year which has led to home sales picking up.

While the current financials may be improving, the company's loan growth has been barely 4% CAGR over the past 5 years. Net profits have also grown at a disappointing 4% CAGR over the past 5 years.

The return on equity which was 15-16%, five years ago, has come down to 12% in FY23.

From a margin perspective, however, things are gradually improving. The company closed FY23 with a net interest margin of 2.9%. The full financial year net interest margin was 2.4% as against 2.2% a year ago.

The stock is currently available at 0.9 times the book value with a 1.9% current dividend yield.

#2 Rajesh Exports

Second on the list is Rajesh Exports.

It's a gold refiner, manufacturer and exporter of gold products. Rajesh Exports is the only company in the world with presence across the entire value chain of gold from refining to retailing, processing 35% of gold produced in the world.

It sells gold and diamond jewellery through its retail chain stores of brand name SHUBH Jewellers.

As of September 2023, LIC has over 10% stake in the company.

BSE data shows that LIC has almost 32 million shares of Rajesh Exports which translates into 10.8% of the total equity.

LIC has been adding stake in the company since May 2021. However, the company's recent performance might make LIC to change its stance.

Shares of the company have been in a free fall, currently trading at their lowest level since 2015.

The primary reason behind this could be the company not disclosing its cash-flow statement to the exchanges.

The National Stock Exchange (NSE) has sought clarification from Rajesh Exports for failing to disclose its half-year cash-flow statement and proper audit report alongside the quarterly results for the period ending September 2023.

This has happened earlier too when the company did not put out its audit report and a comparative number of cash-flow statements during its FY23 and fourth quarter results announcement in May 2023.

In the September 2023 quarter, the company's net profit crashed 88% to Rs 453.1 million (m) on the back of lower income.

Going forward, the company might expect some turnaround, given its foray into the energy storage solutions.

The largest gold financier in the world setting up a battery facility...let that sink in. Here's what the company's chairman had to say about it...

• While leading the Global Gold business, REL is foraying into advanced technology solutions with an aim to provide clean and green energy to the World.
  
  REL would be taking all the required steps to emerge as a leading global player in advanced technology solutions.

It's a 100% subsidiary of Rajesh Exports in the name of ACC Energy Storage Pvt Ltd.

In January 2023, Rajesh Exports signed an agreement with the union ministry and Karnataka government for a 5 GW lithium-ion cell factory.

The Karnataka government will provide Rajesh Exports with a tailor-made incentive package for the gigafactory.

#3 Voltas

Next on this list is Tata group company Voltas.

The company is a household name that offers engineering solutions primarily in the air-conditioning market, with a market share of 22.8%.

Apart from catering to the retail market with its branded cooling products like air-conditioners and refrigerators, it offers MEP (mechanical, electrical, and plumbing) services and supplies engineering equipment.

As of September 2023, LIC holds 10.3% of the total equity of Voltas, i.e., it has around 33.9 million shares of the Tata group firm.

Last year in November, LIC bought an additional stake in Voltas for Rs 6.4 bn, taking its shareholding up by 2%.

If you look at the detailed shareholding pattern of Voltas, a concerning trend that has emerged is that FIIs have been selling shares of the Tata firm for the past seven quarters.

On the other hand, domestic institutional investors have been lapping up shares during the same period.

Nevertheless, FIIs would be on the happier side as shares of Voltas have largely underperformed in the year gone by.

But as they say, you can't keep a good player down for too long. Many experts are projecting a turnaround in the stock given its massive capex plans.

In the last five years, the revenue of the company grew by a CAGR of 5.7%.

However, the net profit fell by a CAGR of 23.3% due to a rise in the prices of key inputs such as aluminium, steel, copper, and high-density polyethene.

As a result, the net margin, RoE and RoCE contracted.

In its recent quarterly presentation, the company said it has taken steps to reduce its costs and improve margins.

It also announced the launch of a range of products with enhanced features and quality and plans to manufacture more value-added products to improve margins.

Voltas has a capex plan of Rs 3.5 bn to Rs 5 bn for the next 18 months to increase its manufacturing capacity to 5 million units.

Voltas could benefit from the upcoming wedding season in India.

Typically, the festive season starts from Onam, covers Durga Puja and with Diwali, contributes around one-third of the overall annual sales value.

But the sales continue to remain elevated as the wedding season follows immediately after right up to March.

Electronic items such as televisions, air conditioners, refrigerators, etc, are popular purchases by the bride and groom or as a gift given by family and friends on the occasion.

With so many tailwinds at play, it's about time for the midcap giant Voltas to step up the game.

#4 BHEL

Fourth on this list is BHEL.

The company is a leading manufacturer of power plants in India. Its clients are in sectors like power, transmission, transportation, renewable energy, oil and gas, and defence.

Around 76% of its revenue comes from the power sector and the remaining 24% comes from other areas like renewables, defence, and aerospace.

As of September 2023, LIC holds 10.1% stake in BHEL. It holds a little over 350.8 million shares of the engineering company.

LIC initially bought BHEL in 2014, via various open market transactions. Since then, it has added exposure and its current holding stands at 10.1% of the total equity of BHEL.

The insurance company must be laughing all the way to the bank as BHEL shares have staged a major turnaround, now trading at their multi-year highs.

You see, the sentiment around the company is so strong that even after posting muted numbers for the September 2023 quarter, the engineering and power firm is still sitting on a heavy order book.

Market experts are of the view that given the healthy pipeline of thermal power orders and the moderation in receivables that BHEL's sitting on, the near-term outlook is bright.

As of September 2023, BHEL's order book stood at Rs 1.14 trillion (tn), out of which around 71% orders are from power, 25% are from industry, and 4% are from abroad.

Out of these orders, large orders include the Vande Bharat project (80 train sets), thermal orders from NTPC and Adani group, and the hydro project orders from NHPC.

The company has a strong moat as it manufactures the entire range of power plant equipment.

As India has shifted focus towards renewables, BHEL is actively venturing into this arena for a more sustainable long-term strategy.

Going forward, the company is expecting orders from non-coal business segments including railways, defence, nuclear, emission control, transmission, and rural electrification segments.

#5 SAIL

Last on this list is Steel Authority of India or popularly known as SAIL.

It's one of the largest public sector companies manufacturing iron and steel in India. Though the Government of India owns 65% of the company's equity, this 'Maharatna' enjoys operational and financial autonomy.

It exports its products to over 30 countries and has been strengthening its presence in the international markets.

SAIL has the most diversified product range offered by any domestic steel company. It caters to a large number of industries, including power, road and rail infrastructure, oil and gas, irrigation, and airport and port infrastructure.

As of September 2023, LIC holds 9.8% of the total equity of SAIL. It holds 403.9 million shares of the steel manufacturer.

The insurance company raised its stake in SAIL earlier this year in June by buying 2% through an open market acquisition at Rs 66 per share.

SAIL shares have remained rangebound this year, providing little to no direction about its next leg of growth.

The sentiment around the steel major recently turned sour following a downgrade from a brokerage house.

Kotak Institutional Equities in a report said the steel major was the most vulnerable to rising coking coal prices due to its high-cost and lower-margin steel business.

SAIL's chairman recently said that ongoing higher prices of coking coal were a direct hit on the company's margins.

This phase could be the calm before the storm as SAIL is strategically important to the government of India as it owns 65% stake in the company.

The stock is currently trading at a price to book value (P/BV) multiple of 0.7x, in line with its 5-year average.

The company is also planning something on the railways front. It plans to start the trial production of head hardened (HH) rails, used in metro rail and freight corridor projects by October-end.

Note that SAIL has set up facilities for the production of HH rails at the new Universal Rail Mill (URM) at its Bhilai Steel Plant (BSP) in Chhattisgarh.

The company also produces forged wheels for the railways at Durgapur steel plant (DSP) in West Bengal. These rails and wheels are supplied to Indian Railways.

All this should bode well for the company and when there's an announcement supporting railway stocks.

Which Other Midcap Stocks Does LIC Have in its Portfolio?

These were just some of the midcaps in which LIC has the maximum exposure.

But if you do a little digging, you'll notice that out of the total 150 midcap stocks, LIC has exposure to as many as 71 with stakes ranging between 1% to 45%!

Here are a few of them.

LIC's Midcap Stock Picks

Company	No of shares	Percentage (%)
Oil India Ltd.	10,50,70,405	9.7
Tata Chemicals Ltd.	2,39,28,685	9.4
JSW Energy Ltd.	14,91,92,600	9.1
HDFC Asset Management Company Ltd.	1,93,08,829	9.0
The New India Assurance Company Ltd.	14,28,33,188	8.7
General Insurance Corporation of India	15,18,52,518	8.7
Lupin Ltd.	3,74,86,614	8.2
Deepak Nitrite Ltd.	1,10,70,313	8.1
NMDC Ltd.	21,96,57,825	7.5
Bank Of India	28,92,87,324	7.1

Data Source: Equitymaster

It remains to be seen how LIC's holding fare in the coming few quarters.

We'll be back towards the end of the year to conduct a thorough analysis of the top gainers and losers in LIC's stock portfolio.

Stay tuned.

Happy Investing.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...