02 January 2018 Invest

The Oracle of Dalal Street - Rakesh Jhunjhunwala

Bollywood and the Dalal Street have one thing in common—both are ruled by a Don. What Amitabh Bachchan is to tinsel town, billionaire investor Rakesh Jhunjhunwala is to the stock market. Millions from across India come to the city of dreams in search of their success. Jhunjhunwala, 57, is called the Big Bull because, as his friend, Radhakishan Damani, billionaire investor and founder of Avenue Supermarkets, says: “He saw the future of India.”

The billionaire investor, often called the Pied Piper of Indian equities, has remained steadfastly optimistic about the India story, even when the stock market was riddled with scams, and equities was a bad word. A chartered accountant by training, RJ (as he is known to friends) started his journey in 1985 when the Sensex was at 150 points. Today, the benchmark index has whizzed past 

 

Beating the markets consistently isn’t easy, but maverick investor Rakesh Jhunjhunwala has mastered the art.

Malini Bhupta chronicles the life, times and investment strategies of the man who saw the future of India 

33,700 points, and he is ranked by the Forbes Magazine as the 54th richest Indian with a net worth of $2.8 billion. But, Jhunjhunwala hit the billionaire list a decade ago. His net worth was `250 crore in 2003, and by 2007, his net worth hit `5,000 crore, implying a compounded annual growth rate (CAGR) of 111 per cent. In contrast, the Sensex delivered 36 per cent returns in the same period. And since 2003,  his investments have grown at a CAGR of  35 per cent.

For the New Year edition, Outlook Money decided to delve into the mind of this billionaire investor to see if there is a method to his success. In a marathon interview, which

lasted over three hours at his office in Nariman Point, Jhunjhunwala spoke at length about his life, philanthropy, relationships, life lessons and the fine art of making money, which he seems to have mastered. And for those who wish to emulate his success in the markets, he says: “The only rule is that there is no rule.”

For all his protests, friends and associates say he is impossibly passionate about what he does and that’s the recipe of his success. His partner, Utpal Sheth, recalls an incident in 2015—which underscores his passion for markets—when RJ was admitted to Breach Candy Hospital. “Even when he was in the intensive care unit, Rakeshji insisted that he wanted access to the Bloomberg screen. And he sat on a chair and table looking at the Blackberry, while he was in the intensive care unit,” recalls Sheth. Clearly, this passion is what defines the man. “Rakesh brings an impossible passion to what he does and that is what makes him unique,” says Ramesh Damani, BSE member and a friend of 30 years.

Just as RJ is passionate with his ideas, he is generous too and shares them liberally. Another close friend and ace investor Ashish Kacholia, has no qualms in admitting that he has learnt the process of investing from Jhunjhunwala. Kacholia says: “Rakesh always says there are three points to note while picking a stock—size of opportunity before the company, competitiveness of the company and the valuation of the stock. It is one thing to know this intuitively and quite another to follow it as a process.”

Kacholia met Jhunjhunwala socially while he was working with Prime Securities in the mid-90s. A chance meeting resulted in a friendship that has only strengthened over time. Kacholia is involved in the eye hospital Jhunjhunwala is building in the memory of his father in Navi Mumbai. The eye hospital will have the capacity to conduct more than 15,000 eye surgeries a year for free.    

Be it markets or his philanthropic pursuits, Jhunjhuwala backs his beliefs with great gusto. For instance, if he likes a company and its management, he commits large sums of money to it. He started out as a trader in the 1980s, but Jhunjhunwala has now emerged as an investor of choice, and as a result, “the best companies and promoters seek us out,” says Sheth. The reason for this is that when Jhunjhunwala’s Rare Enterprises invests in a company, they put the company’s interest above everything else. Rather than look for returns alone, Jhunjhunwala and his team also engage with managements and share ideas. So, when the market gets to know he has invested in a company, the company tends to  get a higher valuation compared  to peers.

His phenomenal success is as much about his unique personality, as it is about his stock picking prowess. Jhunjhunwala is decisive and puts the money where his conviction is. Officials of companies in which he has invested say that if he likes the company, management, and the stock price, he takes very little time to sign the cheque. His stock investments often do the rounds on WhatsApp groups and research analysts track it closely. There’s a Rakesh Jhunjhunwala fan site too, which is run by his followers, but he doesn’t endorse it.

Jhunjhunwala does not mind any of this, even if he does not endorse any of these entities. Unlike others, Jhunjhunwala is open about his investment calls. Says Kalpraj Dharamshi, another investor and a

 

 

good friend: “Rakesh is unafraid of taking risks and is transparent with his investments. He does not hide them through  a complex web of companies. He is not worried about people knowing his investments and his calls, even if some have gone wrong.” And wrong Jhunjhunwala has gone for sure,  despite his acumen. Some of them include names like Prozone Capital, Bilcare and  A2Z Maintenance.

To decode Jhunjhunwala the stock picker, it is important to understand the man he is. For avid RJ fans, his ten commandments on

 

trading and investment are gospel, which he has enshrined in his office. Along with these, his office is strewn with memorabilia given by his friends and family. Enjoying pride of place on his desk is his daughter Nishtha’s picture, while on the top drawer of his desk he keeps a poem, written by Prasoon Joshi for his wife Rekha Jhunjhunwala on their 25th wedding anniversary. His cigars occupy the drawer below, if that says anything about the man. And a painting gifted to him by Kacholia adorns the spot behind his chair. The painting is of him and friend Radhakishan Damani, standing outside the iconic Bombay Stock Exchange (BSE) building.

Despite his mercurial temper and abrupt ways, Jhunjhunwala manages to inject his brand of personal charm into everything he does. For instance, he never forgets to carry a special paan for Bhaskar Bhat, managing director of Titan Company, when he attends the company’s analyst meet. Bhat, who has known Jhunjhunwala for more than two decades, says: “Rakesh is a combination of information and intuition. He takes a leap of faith, and then there is a degree of boldness in his decisions. He actually feels people and how committed they are when he walks into  an office.”

Talking of leap of faith, Jhunjhunwala is known for his contrarian calls. He is known to pick stocks, which have the potential to grow and become big, but have beaten down valuations. For instance, his portfolio, currently, has two pharmaceutical companies —Aurobindo and Lupin. The pharma sector may be an ugly duckling for the rest of the market, but Jhunjhunwala believes in the story and expects the sector to make a comeback.   

He has on his fingertips the financials of most companies and their return ratios. But RJ’s keen interest is not restricted only to his investments—he takes an equal interest in the lives of people he meets and works with. That he can rattle off dozens of mobile numbers only speaks volumes about his ability to retain facts and figures. His friend Kacholia fondly recalls the initial days of their friendship: “After we met, I used to go and pick his brains and discuss ideas with him. And he was very generous with his views and ideas.” And his generosity is not reserved just for his friends. The billionaire investor is more likely to give

a visitor a piece of advice on tax-saving that is more valuable than any practicing chartered accountant’s recommendation. Ask him if people seek stock tips from him in elevators and his answer is swift: “You cannot make money on borrowed knowledge.” But if you have a problem, his friends and associates claim that he gives the best advice. Conversations with him can swing from material to philosophical in a matter of seconds. OLM presents the best of Rakesh Jhunjhunwala:

How does one become  Rakesh Jhunjhunwala?

Even though, there are plenty in the market who claim that they have learnt what they know from him, Jhunjhunwala simply says, that he never planned to be what he has become. “I don’t know how to become RJ. Basically, everybody comes to the market to make money. There is no question about anything else,” he says dismissively. He protests loudly when he is compared to billionaire investor Warren Buffett. “I hope I am not compared to him. I am a very poor comparison. I don’t have the knowledge, ability, and performance he has.” But, he is known to pick stocks that have emerged as winners over time. Jhunjhunwala’s acumen is not just restricted to listed securities. Some

of his biggest multi-baggers have been private investments in companies such as Care 

 

Hospitals, Metro Shoes, Concord Biotech, and Inventurus Knowledge Solutions. Returns from his unlisted universe are so large that they have dragged down the share of profits from his trading bets in his portfolio. However, trading continues to be close to his heart. 

Over the years, many have predicted that Jhunjhunwala too would lose his shirt in the market, but he has only become bigger, even though making money in the markets is much harder. It was relatively easier back in the 1980s and 1990s because markets were inefficient. Acknowledging the fact, he says: “The competition has increased in markets. It is not so easy to make money in markets as it was back then. 30 years ago, markets were inefficient, but now markets are more efficient. In the past, information gap was higher and methodologies were not as transparent as they are now. Everybody was not participating and people were creating scams. Now, it is a well-regulated and conducted market.”

 

Secret behind his success

If there is one thing that makes Rakesh Jhunjhunwala the ace stock picker that he is, then it has to be his curiosity. He is interested in everything about a company—management, decor of a company’s headquarters, and behaviour of employees. Companies claim that he asks all kinds of questions before investing. In fact, he even keenly observes the decor of a company’s headquarters. Jhunjhunwala explains: “Curiosity is the secret of my success in markets and I have an open mind. Building wealth takes time. I have always held on to my beliefs. Reading and experiencing different situations have helped me a lot.” His friend Ashish Kacholia says he was very bullish on Bata at one time, after he read a book by Thomas Bata. 

The secret of making money in the market depends on your ability to change. Jhunjhunwala believes that people must realise that they need to change certain things about themselves at different points of time. He says: “When you become larger, the methods you use, the information you have, and people who assist you in attaining your goals should change.” But what must never change is the respect for others. No matter how rich or successful one gets, there’s always more to learn, he believes. “Success should not make

 

you think you are God’s gift to mankind. You should never forget that you are what you are because God chose you to be there. We must realise that luck plays a big part,” he adds.

 

Stock-picking strategy

Jhunjhunwala’s investments are followed very keenly by institutional and retail investors, alike. While some follow him blindly, an online stock advisory firm Niveza uses his picture to advise investors on stocks, which are allegedly picked on the basis of his strategy. So what is his stock-picking mantra? Jhunjhunwala says, he looks at growth, valuation, liquidity, and

the company’s cash flows. “I pay a price for picking the wrong companies too. When I buy companies, I am adopting them. If they don’t deliver, then I have made a mistake in choosing them. It is true that some companies approach me, which I assess. Others, I choose.” Some of his friends claim that when he believes in a story, he backs his conviction with large sums of money. For instance, he owned substantial stakes in Bata and McDowells because of the size of the opportunity. He has since exited these stocks, and not with a very substantial gains. Time, he claims, has taught him not to

be dogmatic. “Not being dogmatic has helped me become a better stock-picker. You have to accommodate others’ point of view,” he adds. His friend Kalpraj Dharamshi says, that he always takes contrarian calls, because that is where the opportunity lies.  If a stock has been discovered by the market, then the valuation will reflect that.

 

Money Mantra: It doesn’t  give happiness

Most people believe that happiness is intrinsically linked to how much money there is in the bank. But not Jhunjhunwala. He had planned to buy a private jet the day he became a billionaire, but he never bought it. Ask him why, and he says: “I don’t travel.”

Jhunjhunwala says he has no relationship with money. In fact, he believes that even though money gives a sense of achievement, it is not the path to happiness. He explains: “It is a means to an end, but it cannot be an end in itself. Money is freedom because it means I don’t have to do what I don’t like. Money gives me the power to give. Happiness is about contentment and tolerance.”

Money may not be an end in itself, but that does not mean that Jhunjhunwala doesn’t like making the moolah. He says: “The joy of the hunt is better than the kill.” Ask him his net worth and he winks and says: “If you can count it, you don’t have it.”

 

Busting myths

Many people often narrate stories of Rakesh Jhunjhunwala giving a stock idea to a person who came to deliver his car. Rumour has it, that the man went on to become very rich. Ask Jhunjhunwala if this is true and he says: “I don’t remember giving anyone any idea. Nobody has come to deliver any car except my Bentley. You cannot make money on borrowed knowledge, so I don’t give ideas.” 

 

Relationships count more than anything else

No conversation is complete without Jhunjhunwala talking about his wife Rekha. And his relationships have never changed over the years. He says: “My wife Rekha is a very considerate person. My true gods are my parents. I am what I am because of them.” People who know him say that he has gifted stocks to his nieces and nephews and helped them build a neat fortune at a young age.

Even though success has brought some criticism along the way, Jhunjhunwala believes it is important to be unaffected by it. He says: “Hear it and don’t feel bad about it. Success produces its own reactions from people—some good and some bad. You should not get angry with the criticism and get charged by the good.”

 

Philanthropy is more than just signing a cheque

If there is one thing that Jhunjhunwala truly looks for in others, it is passion and drive. He supports the crusader and the crusade. By the year 2020 (when he turns 60), the Big Bull plans to give away 25 per cent of his wealth to charity. For this, he intends to create a trust and then professionalise it. His journey into philanthropy began more than a decade ago with St Jude, which runs shelters for cancer-affected children who come to Mumbai for treatment. But over the years, Jhunjhunwala has adopted many crusaders and their causes. He says: “I choose the crusade and the crusader. My biggest charity is Agastya. The aim is to teach children science and evoke curiosity. I gave them `50 crore for ten years, and this year, I will give `7.5 crore.” His friends and beneficiaries claim that he doesn’t believe in only signing a cheque. He also  visits places and gets involved in the causes actively. Other than these, he also supports Ashoka University.

Currently, Jhunjhunwala is in the process of building an eye hospital in Navi Mumbai in association with Sankara Eye Hospital of Coimbatore. This will be named after his father and will perform 15,000 eye surgeries free of cost. He also supports Olympic Gold Quest and Friends of Tribals Society. The latter is an institution that provides education up to fourth standard for tribal children. He also actively works with an organisation called Impact, and helps it set up schools for girls in villages in North India. But what is really close to his heart is Arpan, an entity that helps create awareness among children on sexual abuse and exploitation.

 

Resolution for 2018: Health first

For many years, Jhunjhunwala’s tried making

New Year resolutions but failed miserably at keeping them. But over the years, goalposts have shifted. Jhunjhunwala claims that exercising everyday gives him more joy than making `2 crore in the market. “My main ambition is to look after my health. I have a control on diet. However, I smoke 15 cigarettes a day. My legs swell and I find it hard to walk. The day I exercise, it gives me more pleasure than earning `2 crore in the market.”

His regime, that is whenever he chooses to work out, includes yoga in the morning coupled with some walking. He says: “Laziness is a disease. I am not lazy mentally, but I am lazy when it comes to physical work. My New Year resolution is to exercise six days a week.”

 

Unapologetically Honest—I am what I am

Generous, sharp, and decisive are the three traits that make RJ unique, his friends claim. But he believes that he is true by heart and even though he has thought of changing several times, he believes being himself has held him in good stead, both personally and professionally. Ask him how he wants to be known, and his answer is quick: “I want to be known as a good stock picker and a good trader. I want to be known as a fair and considerate man.”

 

‘Markets should gain in 2018, albeit at a slower pace’

 

Wondering which way markets are headed in 2018? Look  no further. True to his style, Rakesh Jhunjhunwala gives  straightforward answers to Malini Bhupta’s rapid-fire questions

 

How is 2018 expected to be for  the markets?

The world markets are on fire, and so is the market in India. The Indian economy is undoubtedly on an upturn, and further improvements are expected in 2018. The market has made stellar gains in 2017 and valuations are not cheap. Subject to unknowns, I see no reason why the markets should not gain in 2018, albeit at a slower pace. 

What are the factors that will drive markets in the New Year?

US interest rates, actions of central bankers of the OECD, monsoons, resolution of bank NPAs, inflation, fiscal consolidation, state elections, local interest rates, and the flow of money—domestic and foreign, amongst others.

Are we sitting on the cusp of a Bull  Run as earnings are set to recover after a  long lull?

We are not sitting on the cusp of a bull run, we are in a bull run. 

Is the Indian economy set to get into a high growth orbit after years of policy paralysis?

The excesses of 2010-2014—especially in capital expenditure, the creation of NPAs, policy paralysis and the scandals—resulted in a

slowing of the Indian economy. The remedial measures have started having effect and I have no doubt that we are now going into a higher

growth orbit.

While pharma and IT have become ugly ducklings, what will drive the rally in coming years?

Sometimes ugly ducklings don’t remain ugly forever. I think that pharma and IT will recover in times to come. Also, the businesses linked to the Indian economy should do well. 

What sectors will be stars of a  new India?

I don’t give advice on specific sectors. 

What is your investment philosophy when you pick stocks? Is it value  or growth?

I have no prejudice that I should buy value or growth stocks. If a stock meets certain criteria laid down by me, whether growth or value, I shall buy it. I always feel that it is important what we buy, but it is more important at what valuation we buy. 

Where do you see the Sensex in the coming years?

I see an upward trend in the Sensex. I can only predict the direction, not the precise forecast of where it could be. 

Is politics a risk to the Indian economy?

Politics is an integral part of any society. I don’t think it’s a risk to the Indian economy, but we have to constantly have an eye on the political make-up of the country at any point of time.

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OUTLOOK 02 January 2018