Why would a fund manager buy shares of ICICI Securities in the IPO and then sell them off at a loss, two months later?
As many of us would know, since its IPO in March, the stock price of ICICI securities has seen a sustained fall. At no point, thus far, has the price come back to its IPO price of 520. If I take the month of May in particular, the price ranged between a high of 421 and a low of 352. Yet in that same month, fund managers across 10 9 schemes that acquired the stock in the IPO, brought down those holdings or exited them completely. All put together, these fund managers sold off shares worth 96 91 crore at the time of the IPO, at a loss of somewhere between 19% to 32%.
The table below lists the schemes that took this hit.
Schemes that sold shares of ICICI Securities in May 2018
| No of shares bought in IPO Price: 520 | No of shares sold in May Price: 352-421 | |
|---|---|---|
| HDFC TaxSaver | 981,120 | 508,500 |
| Axis Long Term Equity Fund | 480,788 | 480,788 |
| Reliance Growth Fund | 288,456 | 288,456 |
| Reliance Banking Fund | 192,304 | 192,304 |
| Edelweiss Maiden Opportunities Fund-1 | 96,180 | 96,180 |
| Edelweiss Long Term Equity Fund | 96,152 | 86,183 |
| Kotak Bluechip Fund | 63,448 | 63,448 |
| Kotak Equity Savings Fund | 30,744 | 30,744 |
| UTI Banking and Financial Services Fund | 288,484 | 3,957 |
Data Sources: BSE, NSE, RupeeVest.
The way I see it, a couple of months is just too short a period for a long term investor to have drastically changed one’s view on this stock. So what else could explain the actions of these fund managers?
One view is that the fund managers may have been forced to do this on account of scheme reclassification. That doesn’t make sense to me because the stock fitted comfortably into the portfolios of all of the schemes on the list above. Another view is that this might have been done to meet redemptions. But the extent to which most of these fund managers reduced their positions makes me doubt that. As it happens, one of the schemes on the list is a closed-end scheme while three others are ELSS. A third view is that the fund managers may have decided to cut their losses. While that’s not implausible, it strikes me as an approach that a trader would take and not something that a fund manager would do.
As I took a closer look at the numbers, something else emerged. This pertains to three two fund houses whose schemes are listed above: Kotak Mahindra MF, Reliance MF and UTI MF. It turns out that in the same month, while their schemes listed above reduced or exited their holdings, there were other schemes managed by these fund houses where the exposure to ICICI Securities was increased. In the case of the latter two fund houses, the shares sold in one scheme were identical to the shares bought in another scheme, suggesting the possibility that these might be inter-scheme transfers.
Fund houses that took contradictory action on ICICI Securities in May 2018
| Action taken | No of shares | |
|---|---|---|
| Kotak Mahindra MF | ||
| Kotak Bluechip Fund | Sale | 63,448 |
| Kotak Equity Savings Fund | Sale | 30,744 |
| Kotak Emerging Equity Scheme | Purchase | 154,828 |
| Reliance MF | ||
| Reliance Growth Fund | Sale | 288,456 |
| Reliance Banking Fund | Sale | 192,304 |
| Reliance Focused Equity Fund | Purchase | 192,304 |
Data Source: RupeeVest.
Frankly, I can’t think of any good reason why a fund house would have sold its loss-making investments in one scheme only to buy those shares in another scheme.
In fact, looking at all of this, makes me question the credentials of the concerned fund houses and fund managers to manage long-term investments. I came upon all of this information, quite by accident. But now I wonder that beyond ICICI Securities, where else may something like this have happened, and how often it might have happened. I guess that unless these fund houses/ fund managers decide to open up about this, we may not know. Personally, I think that investors in these schemes should press hard for answers.
Correction: The original version of the post incorrectly identified UTI Multi Cap as a fund that had sold shares of ICICI Securities. That scheme was merged into UTI Value Opportunities Fund. I apologize for the inaccuracy.
