The Market Maestro

The market maestro

Mega-investor Rakesh Jhunjhunwala has raked in crores by betting big on India and he’s still on a winning streak, says Paran Balakrishnan

What makes Rakesh Jhunjhunwala different from other mere mortals who put their money in the stock market? Back in 1985, Jhunjhunwala, a green-behind-the-ears chartered accountant started out by investing a few thousand rupees in the market — and he didn’t have a father or an uncle in the business. Today, he’s worth anywhere between Rs 750 crore and Rs 2,500 crore, depending on which estimate you believe. He shrugs off questions about his wealth with a terse, “what does it matter.” One way or another, there’s no question that Jhunjhunwala has been on a roll in recent months. In February, one of his big bets paid off handsomely. American company Standard & Poor’s made an offer to buy Crisil, the Mumbai-based financial services company. Jhunjhunwala owns about 14 per cent of Crisil and could make Rs 60 crore if he sells to S&P. Or, step back three months when Jhunjhunwala announced that he had accumulated a 5 per cent stake in Mid-Day Multimedia, the feisty Mumbai-based multimedia company. Today that’s reckoned to be a smart buy because media stocks are climbing once again. But this is all in a day’s work for the man who is often described as the Warren Buffett of the Indian stock market. Remember that Warren Buffett, who started investing in the ‘50s is now worth around $41 billion and is the world’s second richest man. Buffett earned this vast wealth by picking well-managed companies that were slightly undervalued and then putting big bets on them. Quite simply, Jhunjhunwala has followed a similar, diligent and methodical approach and built up a giant fortune over the last 20 years. Mid Day reckoned a year ago that he was the most influential man in the Indian stock markets. Says one associate, “Companies want him to invest because the moment he picks up a stake, awareness increases. He has a Pied Piper effect.” Adds Jhunjhunwala, “I like to identify good companies and stay with them.” But Jhunjhunwala’s life has changed in more ways than one in recent months. For a start, he now has an 18-month daughter and she has changed his life beyond recognition after 18 years of marriage. “It’s so nice to see her smiling face when I go home,” he says. “But other people have been through the same thing,” he adds quickly. The birth of his daughter coincided with an overhaul of his working style. For almost two decades, he was a one-man stock-picking organisation. “I had nobody. I was doing everything on my own,” he says. Today, his Rare Enterprises (named after Rakesh and his wife Rekha) which operates from the 15th floor of a tower block in Mumbai’s Nariman Point, has a select team of nine or 10 analysts and another half-a-dozen backroom boys. “I want to use other people’s skills. And I want my legacy to live beyond me. I want perpetual life for my business,” he says. Jhunjhunwala himself is constantly keeping an eye on the five screens that flicker in front of him. He talks in bursts and his attention always wanders back to the screens. His office is decorated with plaques of his stock market heroes. On the way in there’s Sir John Templeton, followed by the inevitable Warren Buffett. Also, there’s Buffett’s guru Benjamin Graham (see box). Inside the office, there’s a plaque with the 10 rules of investing just next to the door that leads to a large sea-facing balcony. Jhunjhunwala himself is constantly tossing off one wise saw after another. “Never be afraid to make mistakes,” is followed by “Have faith in India and the gods.” Or, there’s another favourite: “I am not in a profession but in a passion.” Get one thing straight. Jhunjhunwala isn’t a stock market player in the mould of Harshad Mehta or Ketan Parekh, whose fortunes soared and then tumbled. Jhunjhunwala plays an entirely different game. Says an associate, “They were market manipulators and tried to dominate the market. Rakesh invests in business that has the potential of going up.” In short, he’s what is termed a value investor (see box) and will stay with a company for years. Typically, he is likely to spot a mid-sized company that he likes and then accumulate a sizeable stake in it — also, he doesn’t manage anyone else’s money. It’s all his own. About a year ago, for instance, he took a big stake in, and then joined the board of Praj Industries, a medium-sized engineering company. He has also, at different times, bought sizeable stakes in companies like Lupin Labs, Matrix, and Geometric Software. It’s rumoured that when Jhunjhunwala takes a big stake in a company, it can be upto Rs 50 crore. Also, he’s on the board of several favourite companies. But Jhunjhunwala has always specialised in staying apart from the herd. Back in 2000 when tech frenzy was at its peak, he was playing an entirely different game. While everyone else was hoovering up tech stocks of any kind and watching as values shot through the roof, he was buying humble public sector stocks. He admits that it was a tough few months during which he had the occasional sleepless night. “Other people were laughing at me and I had self-doubts. After all, we are all human.” In those days he was buying stocks like Shipping Corporation of India, Bharat Electronics and several others. “I made a call on the public sector that has turned out to be good,” he says modestly. There have been other times when he spotted good value early and also moved in the opposite direction from the herd. In 1985 he made his minuscule entry in the market by snapping up a small number of shares in Tata Tea. He had been fascinated by the markets even as a boy, and he entered full-time after passing his chartered accountancy exams (his father was an income tax officer). “I was always on my own. I lived in a joint family with no need for a regular income. Sporadic earnings were fine.” About three or four years later, he began to rake in sizeable amounts of cash. In 1989 most market players were gloomy about Madhu Dandavate’s budget but Jhunjhunwala sensed that the Sensex might move upwards. “In 1989 others were bearish and I was bullish. I made money on that budget,” he says in a matter-of-fact fashion. Three years later, he was right once again. “In 1992 (during the Harshad Mehta boom), I made money in the rise and during the fall. I got it right both ways,” he adds. Amazingly, he hasn’t had too many bad moments though he admits he’s made mistakes. In March 2001 around the time of the Tehelka scandal, he was bullish but the market went down. He says his biggest stockpicking error was probably NIIT, which he bought in October 2001 and sold a few months later. “I didn’t lose on it. But I judged it wrongly,” he says. How do other players in the market view him? For a start, they keep an eagle eye on every move he makes. Usually when he buys into a share, it immediately moves upwards because others want a share of the action. “Every stock he buys sees an upsurge,” says an associate. The fact is that most market players believe he’s scrupulously honest. “He has 100 per cent integrity,” says one market analyst. “He doesn’t play the market or create prices like other so-called investors.” They also believe he’s in a league of his own. “He’s one of the smartest investors in the Indian market. His understanding of the broader issues that affect the market is excellent. This encompasses everything from stockpicking to buying at the right price and selling at the right price to monitoring the stock and making use of every opportunity to create wealth. Usually, people are only good at a couple of these things but he’s a blend of all these,” says a large market participant. Then, there’s his famed bullishness about India. Outside his office are two sculptures of a bull and a bear respectively. But Jhunjhunwala is usually viewed as an optimistic bull, who has unwaveringly put his money on the Indian economic story. “This country is going through a giant change,” he says. “In a country in which 30,000 people are being born every day it doesn’t pay to be bearish. As an investor, I am always optimistic.” And, for Jhunjhunwala optimism has paid off in a spectacular way. Playing the value game Rakesh Jhunjhunwala has always prided himself on being that rare creature on the stock market: a value investor. But what is a value investor and how is such a beast different from the other players on the market? Basically, value investing is a tough business that advocates buying stocks on the cheap. In other words, the trick is to hunt out under-priced stocks and then wait patiently for the market price to climb. Talk about value investing and the first names that spring to mind are world-famous marketmen like Warren Buffett who is probably the most admired investor in the world today. Or, there are other slightly less famous figures like Sir John Templeton, the founder of the eponymous mutual fund company (acquired by Franklin Resources in 1992) who was the first person to practise global value investing. But the man who is regarded as the founder of value investing, and who strongly influenced even Buffett, is Benjamin Graham. Graham advocated the “margin of safety” concept. That means any stock you buy should be worth much more than its cost. He believed in investing in low-risk, high-return stocks and disagreed with the more widely-touted risk-return theory, which states that the higher the return, the higher the risk. So how does one find such stocks? By avoiding popular stocks as they are already fully priced and also by steering away from growth stocks, which, because they are usually popular, tend to perform poorly in bad markets. In a way, investors like Buffett and Templeton have thrived by being contrarians. For instance, Buffett stayed clear of tech stocks during the boom. And in 1939 when World War II broke out, Templeton bought $100 worth of every one of the 104 stocks listed on the New York Stock Exchange that was then trading under $1 per share (37 of these companies were in bankruptcy). Three years later, he had a profit on 100 of the 104 stocks. How can you and I get into the value investing game? It’s tough. You have to find neglected stars — the big favourites like Infosys, ITC are usually fully priced. So, the trick is to hunt out well-run, mid-sized companies that can grow steadily. And it’s getting tougher to find neglected stars. If you do want to be a value investor, it’s necessary to pore over the balance sheets of relatively unknown companies. It will need lots of time, effort and market-savvy. Happy hunting. Aarti Dua