This approach wasn't accidental—it was a conscious choice to build exposure gradually through open market transactions, ensuring fair price discovery and eliminating any perception of preferential treatment or insider access. The insurer's stake grew from 1.99% in March 2016 to 11.22% by March 2022, representing a more than fivefold increase achieved entirely through market purchases.
This independent investment process speaks volumes about LIC's governance framework. By maintaining complete arm's-length distance from company management, LIC ensured its decisions were based solely on commercial prudence and fundamental analysis rather than special access or relationships.
The company has consistently denied any placement to LIC, with Mehta emphasizing that "no promoter has ever sold his shares to LIC" and "the company has never made any placement to LIC". This clean separation eliminates concerns about conflicts of interest and aligns with SEBI's objectives under insider trading regulations.
The recent 20% decline in Rajesh Exports' share price since June 3, triggered by SEBI's interim order alleging Rs 15.15 lakh crore revenue misrepresentation, has significantly impacted the market value of LIC's holdings. The stock has fallen to approximately Rs 84.66, hitting consecutive 5% lower circuits that make exit difficult even for small holders. However, this sharp correction may not have pushed LIC into losses on its overall position.
Mehta believes LIC may still be sitting on gains despite the current carnage. "Even today, at these pathetic rates and lower rates also, according to my understanding, LIC has still not lost money," he stated. This assessment hinges on LIC's 20-year accumulation timeline, which involved dollar-cost averaging across various market cycles. LIC purchased shares at prices ranging from potentially Rs 20-30 during bear markets to Rs 800-900+ during bull market peaks. This extended accumulation period naturally averages down the cost basis, potentially keeping it well below current depressed levels even after the recent 90% decline from the February 2023 peak of around Rs 239.
The mechanism that enabled retail investors to realize gains when selling to LIC over the past two decades is fundamentally simple: the zero-sum nature of individual stock transactions. When a retail investor sells shares to LIC at a profit, that gain is realized immediately regardless of what happens to the stock price afterward.
Over 20 years, countless retail investors sold Rajesh Exports shares to LIC at various price points. Those who bought early and sold during bull markets realized substantial gains. Those who sold during peaks locked in maximum profits. The wealth transfer occurred transaction by transaction, with retail sellers realizing gains based on their individual entry and exit points. LIC, as the consistent buyer, absorbed these shares across market cycles, building its position through both expensive purchases during euphoria and bargain hunting during despair. This patient capital approach allowed retail investors to exit with profits while LIC accumulated a strategic stake over time.
A potential LIC exit from its 10.80% stake would dramatically impact Rajesh Exports' liquidity profile and price discovery mechanism. Current trading volumes are extremely low—just 89,111 shares daily, representing only 0.06% of free float—creating severe liquidity constraints. LIC's 32.59 million shares represent 366 days of current trading volume, meaning any significant exit would overwhelm market depth and cause substantial price slippage.
The outcome of LIC's divestment—whether creating buying opportunities or triggering further declines—depends critically on the exit method and market sentiment. An orderly block deal to institutional buyers could minimize disruption, while forced open market liquidation could trigger cascading declines. The absence of promoter sales to LIC actually reduces counterparty risk because it eliminates insider selling concerns and ensures market-based pricing. However, the concentration risk remains significant: LIC is the sole domestic institutional investor, with mutual funds and private insurers having avoided the stock for the last decade.
SEBI's probe has fundamentally altered the correlation between regulatory scrutiny and LIC's investment risk, transforming what was previously a standard equity position into a high-profile governance case. The complete absence of any promoter-LIC relationship has strengthened regulatory perceptions of market integrity by eliminating concerns about insider information or preferential treatment. This arm's-length relationship demonstrates institutional independence and adherence to market-based investment principles.
LIC's strategic silence amid the controversy reflects sophisticated fiduciary considerations. As India's largest institutional investor, LIC faces multiple stakeholder groups and must balance transparency with legal prudence. Maintaining silence during ongoing regulatory proceedings allows for thorough internal assessment, protects against legal exposure, and preserves decision flexibility. This approach aligns with institutional best practices for managing public relations during regulatory investigations, where premature statements could complicate legal positions or trigger additional market volatility.
The structural factors determining downside risk allocation during circuit limits create asymmetric outcomes favoring institutional investors. When Rajesh Exports hit lower circuits, retail investors face severe exit constraints, limited information access, and psychological pressure to panic sell. Institutional investors like LIC have superior resources, diversified portfolios, and sophisticated risk management capabilities that allow them to absorb losses more effectively.
In contrast, approximately 1.94 lakh retail shareholders face concentrated risk with limited diversification options. This structural imbalance means that while wealth transfer mechanisms in secondary markets reflect efficiency benefits of institutional participation, they also highlight equity challenges in ensuring fair outcomes for all market participants.
The Rajesh Exports case ultimately demonstrates how patient institutional capital can navigate extreme volatility while providing liquidity and exit opportunities to retail investors over extended time horizons. Whether LIC ultimately realizes gains or losses on its position, the 20-year accumulation strategy represents a sophisticated approach to building strategic stakes while maintaining governance standards and market integrity.
