Wednesday, August 18, 2010

The Indian Warren Buffett - Mr Rakesh Jhunjunwala

Rakesh Jhunjhunwala is an Indian Chartered Accountant by qualification but an investor / trader by profession. In 2010, Forbes rated him as India's 51st and the world's #1062 richest man with wealth of $1.0 billion. He is one of the most famous and respected equity investors in India and manages his own portfolio as a partner in his asset management firm, Rare Enterprises. A large man in his late 40s, Jhunjhunwala was described earlier this year in a magazine as the "pin-up boy of the current bull run" and by another as "Pied Piper of Indian bourses". He is tagged by the media as 'India's Warren Buffett'.

Mr Jhunjhunwala stays at Malabar Hill and works from his office at Nariman Point in South Mumbai. He regularly appears on various business channels on television to share his ideas and opinions on the Indian markets. He is well known among the investing circles as 'Rocky' and among his close associates as 'Bhaiyya'. He considers Mr Radhakrishnan Damani as his guru (mentor) and best friend

Son of an income tax officer, he started dabbling in stocks while in Sydenham college and plunged into investing as a full time profession soon after completing his education. He started his career with $100 in 1985 when the BSE Sensex was at 150. He made his first big profit of Rs 0.5 million in 1986 when he sold 5,000 shares of Tata Tea at a price of Rs 143 which he had purchased for Rs 43 a share just 3 months prior. Between 1986 and 1989 he earned Rs 20-25 lakhs. His first major successful bet was iron ore mining company Sesa Goa. He bought 4 lakh shares of Sesa Goa in forward trading, worth Rs 1 crore and sold about 2-2.5 lakh shares at Rs 60-65 and another 1 lakh at Rs 150-175. The prices then went up to Rs 2200 and he sold some shares.

But he credits Madhu Dandavate's Union budget of 1990 as the inflection point for his investing career which quintupled his net worth. His privately owned stock trading firm Rare Enterprises, derives its name from the first two initials of his name and wife Rekha's name.

Under the guidance of Mr Radhakrishna Damani, he made a lot of money shorting stocks at the time of Harshad Mehta scam post 1992.

"My decision to aggressively invest in the asset class of Indian equities at the right time was a very important determinant of my success," said Rakesh Jhunjhunwala.

Jhunjhunwala's portfolio of stocks is tracked religiously. His latest stock portfolio is the subject of many debates and analysis. Like Warren Buffett, Jhunjhunwala is a long term investor, however he acknowledges that it was 'trading' income which helped him built his initial capital base and continues to remain an active trader as he believes it keeps one alert and always on your feet.

Mr. Jhunjhunwala is the Chairman of Aptech Limited and Hungama Digital Media Entertainment Pvt. Ltd and also sits on the Board of Directors of various Indian listed/ unlisted companies like Prime Focus Limited, Geojit Financial Services Limited, Bilcare Limited, Praj Industries Limited, Provogue India Limited, Concord Biotech Limited, Innovasynth Technologies (I) Limited, Mid Day Multimedia Limited, Nagarjuna Construction Company Limited, Viceroy Hotels Limited, CRISIL & Tops Security Limited

Investment Philosophy

Although he claims to put only a minuscule of his networth on the table for trading activity, he has often leveraged his own capital and managed to make a fortune from his calls, more often than not. His stock picking strategy is influenced by the lessons from Mr George Soros's trading strategies and Dr Marc Faber's analysis of economic history. He endorses the thumb rule of 'trend is my best friend'.

He is the poster boy of the Indian bull run but admits to have been a bear in the Harshad Mehta days and believes that a person in the market should be like a chameleon. He calls the markets as temples of capitalism and believes that they are the ultimate arbitrators.

Much like Mr Warren Buffet, he buys into the business model of a company and for judging the longevity and growth potential, he gives top priority to 'competitive ability', 'scalability' and 'management quality' of the enterprise. The 'entrepreneur', according to Mr Jhunjhunwala is what makes an invaluable difference to his expected investment returns. According to Mr Jhunjhunwala, believing in the vision and the beliefs of the entrepreneur and validating the risks that may not be perceived by the entrepreneur are the key success factors for an investor.

Mr Jhunjhunwala has managed to identify numerous multi-baggers in the past decade, notable being Karur Vysya Bank, Praj Industries, Crisil, Titan, Nagarjuna, HOEL and PSUs like BEML and Bharat Electronics, among others. The typical traits to look for while identifying potential multi-baggers, according to Mr Jhunjhunwala are - low institutional holding, under-researched and general pessimism about the stock.

A good time to sell a stock, according to Mr Jhunjhunwala, is not based on any 'price' targets, but when the 'earnings' expectations have peaked or the business model has peaked or the valuations appear ridiculously unreasonable.

His current holdings (that is, where he has more than 1% holdings) are spread across as many as 27 stocks, mostly mid-caps, and across sectors such as oil exploration, IT, hotels, pharma, entertainment, engineering, construction, retail and auto ancillaries. His investment in Titan Industries (TITAN.NS : 2898.2 -46.05) alone is worth over Rs 1,000 crore.

During the June quarter, he increased his holding in VIP Industries to 5.81% from 4.47% as compared to the previous quarter, according to CapitalLinePlus data. In the same period, he reduced his stake in Titan Industries to 8.58% from 8.62% and in Praj Industries to 7.73% from 7.83%.

Interestingly, there are hardly any cyclical or commodity stocks in his portfolio.

Jhunjhunwala prefers investing in a large amount in a small number of companies - which is against the usual investment style of diversifying across stocks. In fact, his top 5 picks - investments in companies such as Titan Industries, Lupin, Crisil, Nagarjuna Construction and Karur Vysya Bank - account for about 60% of his portfolio.

Going by his sizeable investments, you'd expect Jhunjhunwala to develop some kind of emotional attachment to the scrips he invests in. But that's not him. "I hold on to a stock because it will give me returns and not because I'm emotionally attached to it," insists Jhunjhunwala, who manages his own portfolio as a partner in his asset management firm, Rare Enterprises. And for all the intrigue and attention surrounding his trading activities, his investment philosophy remains simple: 'buy right and hold tight'. Jhunjhunwala admits to being a long-term investor, but clarifies that he's not an inveterate bull: "I have been a bear many times, including in 1992 when the market (Sensex (^BSESN : 18111.42 +62.57)) fell from 4,300 to 2,100 levels. Incidentally, this was the time Harshad Mehta, India's first bull, was at the helm of market affairs.

Like many big investors, he too made mistakes which he is candid about. "I was cautious and went short sometimes in the period between October 2007 and October 2008." In fact, he regrets not having sold as much as he should have in October 2007.

That said, Jhunjhunwala is very much bullish on the India growth story at the moment. Recently, in an interview to a news channel, he reiterated that the market will touch new highs by the end of this financial year. "He has an unshakable conviction in the India story. That's his greatness," says Shankar Sharma, vice chairman & joint MD of First Global, who has locked horns with Jhunjhunwala on several forums and panel discussions.

At 50, he may hold on to his convictions a little more tightly but that doesn't mean Jhunjhunwala frowns upon new ideas. "I read a lot and am constantly learning from others," he reveals. The walls of his office in Nariman Point - dotted with line drawings of legendary investors such as Warren Buffett, George Soros, John Templeton and Peter Lynch - in a way bears testimony to that. And though he has no role models as such, he admits to admiring George Soros because of the "kind of success he has achieved, his understanding of the markets and his charitable activities."

His investment style may bear some semblance to that of these gurus but a lot of top stock traders believe he is simply incomparable. "He is not a copy of anybody. He is Rakesh Jhunjhunwala," says Raamdeo Agrawal, co-founder and joint managing director at Motilal Oswal Financial Services. "He is intelligent, passionate and an independent thinker. Besides, he has the ability to take measured risks and leverage his portfolio, something very few investors can do successfully."

According to Parag Parikh, founder and chairman of PPFAS, an investment advisory firm, Jhunjhunwala differs from Buffett in some ways: "For example, unlike Buffett, he has made some money from trading and does track market movements actively." That said, as someone who has been an early bird in identifying good businesses like Crisil and Titan, Parikh says Jhunjhunwala's investment acumen is top-notch. And unlike his contemporary Harshad Mehta, Parikh says Jhunjhunwala is "Mr Clean who pays all his taxes."

But more than paying taxes, perhaps it's Jhunjhunwala's charitable activities that might endear him to many. Like Buffett and Soros, he plans to get more involved in philanthropy. "I believe that wealth is a gift from God and has to be used for the good of society. I hope to expand my charitable activities substantially in the next few years," he says, without revealing a definite time-frame or the exact amount he intends to spend.

Posted By: S Rahul
Source: Wikipedia And Yahoo Finance


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