Intriguing headline right? LIC, the biggest institutional
investor of Indian equities a savvy trader? Well that ladies and gentlemen is
the fact and the institution has proved it so right with the biggest of blue
chips – Infosys and this despite remaining essentially a large long-term
shareholder. So what am I saying?
Let’s take a look at LIC’s investments in Infosys over the
last 3 quarters and try to see what it is up to.
At the end of December 2012 quarter, LIC held 4.16 cr shares
of Infosys representing 7.2% stake. By the end of March quarter, this was down
to 3.42 cr shares representing 5.96% stake and in the just released June-ending
quarter, its gone back up to 3.86 cr shares representing 6.72% stake. What’s
the big deal you would ask?
The big deal is that by cutting its stake LIC part protected
itself from that ill fated 22% fall Infosys had after Q4 results and by buying
after that fall, it managed to participate in the rally that followed,
especially the 10% thumbs up stock got after Q1 results. Let’s try to put some
numbers here.
LIC sold 74 lakh shares between December to March. Stock
moved between Rs 2700-2900 during that period– so let’s assume an average price
of Rs 2,800 for that period. After Q4 numbers, stock collapsed to Rs 2,300. And
with an average price of Rs 2,200-2,400 for the quarter, let’s take the average
price of Rs 2,300 for the quarter in which LIC bought 44 lakh shares. And now
of course, the stock is back to Rs 2,800
So just for those 44 lakh shares, LIC managed to sell at
highs and buy at lows with a difference of Rs 500/share – that translates into
Rs 220 cr of trading profit. Keep in mind LIC is a long term shareholder and
would have paid no tax on the shares it sold and the shares it acquired last
quarter for sure will again be held for long time.
Of course, LIC had its own compulsions last quarter as I had
written here
– it had to raise money for the plethora of PSU paper that hit the market, but
let’s give credit where it’s due. It managed to play a counter consensus trade
successfully for 2 straight quarters. And that’s the whole premise – even if
you hold a share with a very long term horizon, sometimes a minor churn or
tweaking in portfolios isn’t a bad idea
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