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Not Worth the Wait

The Government's decision to save for a rainy day through SUUTI didn't pay off. SUUTI held three blue chip stocks after it split from UTI in 2003 & now has seen a drastic fall in its value

It is said that time and tide wait for none. Well, neither does the stock market. The government found this out when their strategy of saving for a rainy day didn't work out as it succumbed to the fallacy of assumptions. In the Finance Bill for 2008-09, disinvestment proceeds of Rs. 1165 crore have been estimated, which include Rs. 9000 crore of 'assumed' receipts from the stake sale of the Special Undertaking of UTI (SUUTI). The SUUTI had taken over the assets and liabilities of the assured return schemes of the erstwhile Unit Trust of India, but with the fall in the markets, the to-be realized gains remained elusive. The value of SUUTI's portfolio has dropped over Rs 11,000 crore since January due to the fall in stock prices of L&T, ITC and Axis Bank. The value of the three investments has plummeted from a high of Rs 34,748 crore in January to Rs 23,283 crore on March 19, 2008, the period that saw the benchmark Sensex fall by 28.16 per cent. The three blue chip stocks came under SUUTI after the government split the troubled UTI in 2003. As per the plan, SUUTI was to exit the three strategic investments by April 2009. SUUTI holds 9.11 per cent in L&T, nearly 11.91 per cent in ITC, and 27.21 per cent stake in Axis Bank. L&T is now down 35 per cent from its January high of Rs 4,389, ITC is down 20 per cent from the January high of Rs 239 and Axis Bank is down 41.68 per cent from the mid-January high of Rs 1,291. The shares are now trading at Rs 2,841, Rs 187 and Rs 753, respectively.

SUUTI was created to handle the assured returns schemes including US-64. The other UTI, which is referred to as UTI AMC, was asked to handle the other schemes. While SUUTI (read, government) was able to liquidate most of the other small and mid-caps stocks in the past three years, it decided to hold on to Axis Bank, ITC and L&T for the rainy day. But the sudden fall in the markets shaved off 11,464 crores from the SUUTI portfolio. This may not be the right time to exit as well, at least through the open market, which also has a direct impact on the stock prices and liquidity. However, strategic stake sale could fetch higher returns. Now it is for the government to take a decision on exiting these blue chips.