LIC, HDFC MF Go against the Tide, Stock Up on SBI LIC increased stake to 12.76%, HDFC MF bought 1.7% even as stock fell 13% in Q3

Two of India's largest institutional investors stocked up on shares of State Bank of India in the three months to December 31, when many on the Dalal Street were shunning the stock because of worries about the lender's asset quality.  Life Insurance Corporation (LIC), India's largest institutional investor in equities, increased its stake in SBI to 12.76% from 8.68% while the country's largest asset manager HDFC Mutual Fund bought 1.7% stake for its Top 200 product.  SBI shares, which closed at . 1,883.70 on Thursday, fell 13% during the quarter and touched a 52-week low of . 1,576 on December 20. BSE's Bankex dropped 15% and the Sensex declined 6% during the period. Brokers said LIC's investment in SBI last quarter was in line with its 'contrarian' investment strategy --buy when the crowd is bearish and vice-versa.  During the quarter, domestic institutions, including insurance companies and mutual funds, raised their holding in SBI to 18.70% from 18.53% while foreign institutionscut their stake to 7.88% from 8.65% "Last quarter was a good time to accumulate SBI. The bank has many structural positives, especially with the possibility of RBI changing its stance some time soon," said Vaibhav Agrawal, VP – research at Angel Broking.  Investors have been concerned about the state-run bank's asset quality as a slowing economy and high interest rates threatened to increase its non-performing assets. Analysts said such worries persist. "With an ever-ballooning restructured portfolio (at over 4% of the loan book) that has already witnessed slippages at 20%, we factor in marginally higher NPLs (higher slippages and lower recoveries) during FY13E," said Ambit Capital analysts, in a recent note. The brokerage has a 'sell' rating on the stock with a price target of . 1,590.  Recent reports that SBI has classified its exposure to Kingfisher Airlines as an non-performing asset had heightened worries.  "Over the last quarter, the market was concerned about its asset quality. But hopefully, the stress assets will peak over the next two quarters, giving a positive boost to valuations. This will also coincide with a favourable turn in the interest rate cycle," said Rajat Rajgarhia, director – research at Motilal Oswal Financial Services. "For investors looking at a long-term horizon, SBI is trading at attractive valuations," he said.