Monday, July 15, 2013


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

No comments:

Post a Comment