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Probe into LIC’s Stake in Gitanjali Gems

Deepak Shenoy2 min read
Quick Facts
What is "Probe into LIC’s Stake in Gitanjali Gems" about?
What category is this article in?
General
Who wrote this article?
Deepak Shenoy, Capitalmind's research team.
When was this article published?
Published 28 July 2013.
How long does this article take to read?
2 min read
What topics does this article cover?
Gitanjali

The government owned insurer, LIC, had bought a large stake in Gitanjali Gems in 2012, continuing to purchase more stock, and ending up with 4.89% with 45 lakh shares.

The stock has continuously fallen since June 21, from 500 down to the Rs. 84 it currently is at, with only sellers in the stock (lower circuits).

And, supposedly, the Finance Ministry is looking into why this investment was made.

Assuming a conservative average purchase price of Rs 400 per share, LIC would have forked out roughly Rs 180 crore for the stake. On paper, the value of the stake is now down to Rs 38 crore. But whom will LIC sell the stake to?, there are simply no buyers.

It’s easy to blame LIC – and it’s possible there is hanky panky in the purchases, in that a kickback could have been given to appropriate officials. That’s no different however from people in positions of power misusing authority to do the same thing – among the top shareholders is Prime Securities which has been accused of using PMS client money to shore up the stock. (See: Sub-Prime Securities?)

More importantly, other big name shareholders are still in the stock, looking at the June shareholding pattern recently released.

  • Bennett Coleman (The Times Group)

  • Morgan Stanley Asia

  • Macquarie Bank

  • Credit Suisse

Some others may have forcibly become shareholders after pledged stocks was transferred to them.

LIC isn’t alone, and honestly I have been a buyer in this stock in the past. (largely on price moves alone). The problem is that you can only trust the fundamentals to what the promoters reveal – and is sometimes “funny”-mentals.

With no bottom in sight, is this the end for Gitanjali? The brand looks reasonable, but what’s really going on? The real story will come later. For now, the price has spoken.

Tagged:Gitanjali