MASTERING THE ART OF STOCK-PICKING: RAKESH JHUNJHUNWALA'S PHILOSOPHY

Rakesh Jhunjhunwala, an icon in the world of investing, imparts invaluable wisdom on selecting stocks with his unique mantra. The core principle revolves around being an original thinker, emphasizing the need to comprehend the intricacies of thought processes and thinking methods to truly succeed in the stock market. Jhunjhunwala's exceptional risk appetite, coupled with a deep understanding of market circumstances, guides his strategic decisions on when and how to stake one's money.

In the realm of investments, consistency emerges as the key, woven with the thread of conviction. Jhunjhunwala's commitment to consistency is evident in his practice of openly sharing stock ideas, despite contrary advice from other renowned investors. He underscores the importance of not just knowing when to enter a stock but also recognizing the critical aspect of timing when it comes to exit strategies—a piece of information often left unsaid by those suggesting stock ideas.

For enthusiasts eager to decipher Jhunjhunwala's stock-picking methodology, he asserts that trading is not something that can be taught; rather, it must be learned through practice and a keen receptivity to its essence. To guide aspiring investors, he outlines five fundamental aspects essential for picking multi-bagger stocks:

Open-mindedness Encourages receptivity to diverse ideas, emphasizing that great stock opportunities often arise unexpectedly through keen observation of market trends.

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2. Opportunity One needs to assess the market opportunities which stresses the correlation between a company's market opportunity and its growth potential, highlighting the wealth potential in embracing change. According to Rakesh Jhunjhunwala, wealth can be generated only when changes happen.

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4. Corporate Governance Corporate Governance refers to how someone runs their company in terms of management. It is also about how someone behaves with their staff, vendors, distributors and how their attitude with money is. Rakesh Jhunjhunwala advocates for companies led by hardworking and honest management. This is the reason why Rakesh Jhunjhunwala had invested a lot in Tata stock, it was only due to their sheer integrity and management.

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6. Competitive Ability Underlines the significance of a company's superiority over competitors, be it through brand strength, technology, or capital. It must be a pioneer in some or the other parameter so that it can stand out in the market.

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8. Valuations Emphasizes the importance of assessing the price at which stocks are acquired, acknowledging the impact of high valuations on overall returns. It is a very common phenomenon that sometimes people invest in great companies but at the wrong time i.e., when their stocks are at high valuations which in turn results in depletion of their returns. So, the price is important. One must learn to value a company and should learn how to read valuations.

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10. Constant Monitoring Despite being a long-term investor, Jhunjhunwala stresses the need for continuous monitoring. Regular analysis and proactive investor calls to assess management decisions ensure informed decisions about retaining or selling stakes.

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    Another question that is asked a lot to Rakesh Jhunjhunwala is: When should one sell their stocks? The answer to this question according to Rakesh Jhunjhunwala is that a person should less their stakes only when they feel that a better opportunity awaits them and it will give more value to their money that they are already investing/or have already invested in some other company. Or it can also be done when a person that the stock has peaked or the business opportunity has peaked.

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14. In essence, Jhunjhunwala's philosophy advocates for a strategic approach to stock picking that combines original thinking, market awareness and constant vigilance- it is a philosophy that extends beyond the mere art of investing to the art of mastering the stock market.

INDIA RISING: THE OPTIMISTIC LENS OF RAKESH JHUNJHUNWALA

 PURPOSE OF THE STOCK MARKET

The stock market has long been perceived by many as akin to a realm of chance, akin to a gambling den—a perception that has endured over the course of history. However, the veritable essence and rationale behind the stock market were eloquently elucidated by Rakesh Jhunjhunwala. According to him, the exigencies of the industrial revolution precipitated a substantial need for capital, an amount that was nearly insurmountable for an individual to amass, given that the concept of businesses had only recently burgeoned. Thus, the notion of a joint stock company was conceived. The stakeholders in these enterprises were a diverse cohort, seeking a consistent avenue to trade these shares while concurrently seeking appraisals for their investments.

The stock market serves as a conduit for transferring capital from its proprietors to those who can effectively deploy it, facilitating both liquidity and a means by which its valuation can be determined. Consequently, the stock market was instituted as a platform for the acquisition and divestiture of shares, with its fundamental objective not tethered to the establishment of a gambling venue—such recreational establishments already exist in places like Vegas!

As per the insights of Rakesh Jhunjhunwala, the stock market, or more broadly, the capital market, assumes the role of sanctuaries for capital allocation. Jhunjhunwala ardently advocated for capitalism, contending that the failure of communism could be attributed to the state's monopolization of capital allocation, resulting in its inefficient utilization. In contrast, market dynamics, he asserted, wield far greater efficacy and efficiency in the allocation of capital.

The existence of the stock market has been instrumental in the ascent of contemporary business magnates. Dhirubhai Ambani and Ratan Tata, prominent figures in today's entrepreneurial landscape, owe their success to the availability of public funds and the conduit provided by the stock market. Without these mechanisms, their trajectories to eminence would have been markedly different.

 

INHERENT OPTIMISM ABOUT INDIA

Rakesh Jhunjhunwala the potential inherent in the Indian market. Despite possessing the financial means to venture into the global arena and explore investment prospects in the global market, his unwavering allegiance remained tethered to the Indian story rather than any overarching global story. During an interview, Jhunjhunwala explained a divergence of perspective between himself and RK Damani. While Damani would actively engage in the acquisition of Multinational Corporation (MNC) stocks, Jhunjhunwala, in contrast, harbored a disinclination towards such investments. He articulated his viewpoint, asserting that MNCs, were unenthusiastic about accumulating more shareholders.

Jhunjhunwala's investment acumen withstood the test of various bear phases in India's economic history. From the dotcom bubble burst in 2000 and the financial crisis of 2008 to the more recent downturns such as the March 2020 COVID-19 crash and the geopolitical tensions surrounding the Russia-Ukraine War in 2022, he navigated through them all. His optimistic outlook, however, yielded substantial returns, particularly during the bullish market conditions in and after 2002. During this period, the stocks within his portfolio turned into multi-baggers, contributing significantly to the augmentation of his wealth.

During the tumultuous period of the 2009 financial crisis, Rakesh Jhunjhunwala exhibited remarkable composure, opting to procure assets perceived as the riskiest in acquiring. His approach was characterized by a nuanced consideration of risks, acknowledging the alternative facets of potential outcomes. When acquiring a stock valued at Rs. 100, he contemplated not only the conceivable decline to Rs. 60 or Rs. 70, or even Rs. 40, but also envisioned the prospect of an increase to Rs. 1200 or Rs. 1300, if not that much then it may rise to Rs. 500 or even Rs. 400. His conviction lay in the belief that investing in high-risk assets could yield substantial returns, however, it entirely depends upon possessing the requisite risk appetite and patience, and crucially, abstaining from leveraging borrowed capital from other people or lenders. Jhunjhunwala's strategy hinged on India's comparatively low per capita income, which he perceived as indicative of substantial room for economic catch-up with more advanced nations.

The expansion witnessed over the past decade is going to be far exceeded in the forthcoming ten years. Prevailing perceptions, once entrenched, suggested a skeptical view regarding India's potential for substantial growth. During Rakesh Jhunjhunwala's pursuit of Chartered Accountancy, the income tax rate loomed at a staggering 95%; many people believed that there was no chance of it going below 75% even in the upcoming years but today, it stands at a more moderate 30%. As believed RJ and many other investors that India is bound to outpace China in terms of growth, a revelation that will undoubtedly catch us all by surprise. RJ's unwavering optimism regarding the nation's trajectory emanated, in part, from his insularity—a characteristic fortified by his limited exposure to international travel, bolstering his confidence in India.

A pivotal lesson gleaned from astute investors like RJ and Harshad Mehta underscores the imperative of maintaining a detachment from politics. The lesson here is clear: never intertwine political inclinations with investment decisions. RJ, a strong supporter of the Modi government, continued to repose faith in the market irrespective of the prevailing political climate. Harshad Mehta, during his time, navigated through the transitions from Congress to the United Front and subsequently, the NDA (National Democratic Alliance).

Another big lesson is that do invest in the market where you do not have a knack- Despite his perennially optimistic stance, RJ did not extend his bullish inclinations uniformly across all sectors. Notably, he remained aloof from tech stocks, particularly in the realm of e-commerce, citing a fundamental lack of comprehension of their business models. His discernment was validated by the colossal losses incurred by companies like Pets.com during the final stages of the internet boom. Moreover, RJ exercised caution in steering clear of investments in private-sector banks.

Rakesh Jhunjhunwala strongly advocated that India's demographic landscape constitutes a significant advantageous factor. He contended that over the next four decades, India is going to manifest one of the most favorable demographic profiles globally, thereby substantially contributing our economic growth. A critical facet of his analysis involved the anticipated diminution in China's demographic advantage, precipitated by its one-child policy. The claims of Jhunjhunwala's assertions from 2009 remains apparent even today, notably in the context of China's average population age of 39, in stark contrast to India's more youthful average age of 28.

Jhunjhunwala's recent investment in the fledgling Akasa Air, attests to his confidence in India's growth trajectory. In a climate where industry titans like Vijay Mallya and Tony Fernandes incurred losses, and even Warren Buffett sold his holdings in major airlines, Jhunjhunwala, ever the contrarian, committed a substantial $200 million for a commanding 46% stake in Akasa Air. This strategic move is underpinned by his conviction that the escalation of India's per capita discretionary expenditure will drive an augmented demand for air travel. The prudent operational approach and frugal air fare of Akasa Air is anticipated to reap significant benefits from this expanding market. Projections indicate that India's aircraft fleet size requirement is bound to nearly double by 2027, further validating Jhunjhunwala's investment rationale.

Rakesh Jhunjhunwala held a steadfast conviction that, in stark contrast to the anticipated recession in developed economies such as the United States, India is set to achieve a robust growth trajectory of 6 to 7% in the FY-23 and 24, as estimated by various esteemed agencies. The esteemed financial institution Goldman Sachs echoes this sentiment, asserting that India harbors the potential to surpass the United States as a larger economy by 2075. This optimistic outlook for India is underpinned by conducive conditions for an economic upswing, characterized by a strategic emphasis on offshoring, substantial investments in manufacturing, and the nation's cutting-edge digital infrastructure.  

SOURCE: THE BIG BULL OF DALAL STREET WRITTEN BY NEIL BORATE, APARAJITA SHARMA AND ADITYA KONDAWAR

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THE SUCCESFUL ENDEAVOURS OF RAKESH JHUNJHUNWALA

INTRODUCTION 

Rakesh Jhunjhunwala, often hailed as 'India's Warren Buffett,' achieved acclaim not merely for his substantial wealth accumulation, totaling an approximate Rs. 38,000 crores, but for his exceptional acumen in Stock Trading and his adept utilization of Technical Analysis methodologies. However, the intricacies of his ascendancy to success, the pivotal decisions shaping his illustrious career, and the specific factors propelling him into the echelons of the world's most accomplished traders remain relatively obscure.

This discourse aims to illuminate the narrative surrounding two seminal stocks that played an instrumental role in establishing Rakesh Jhunjhunwala as a preeminent figure in contemporary Stock Trading. The financial behemoths in question, Titan and CRISIL, stand as exemplars of strategic investments that precipitated Jhunjhunwala's considerable fortune.

It is essential to note that while our focus is directed towards comprehending the dynamics of these two stocks, one should acknowledge the expansive nature of astute investors such as Mr. Jhunjhunwala. His portfolio extends beyond 25 diverse companies, each strategically chosen. Nonetheless, the spotlight on Titan and CRISIL is justified by their consistent performance, emblematic of the judicious decision-making that characterizes Mr. Jhunjhunwala's investment philosophy.

 

 1.1 THE STORY OF TITAN

The Genesis of Titan: An Evolutionary Tale  

The establishment of Titan in 1984 marked the convergence of visionary entities—Tamil Nadu Industrial Development Corporation (TIDCO) and the venerable Tatas—in a strategic joint venture. Seeking pivotal financial support, the project garnered endorsement from the International Finance Corporation (IFC), a counterpart to the World Bank based in Washington DC. This marked the genesis of a dynamic entity, with its inaugural manufacturing facility situated in Hosur and headquarters established in Bangalore.

 

The Vicissitudes of Titan's Trajectory
From its inception, Titan carved its niche as a premium brand. However, the trajectory was not devoid of challenges. Venturing into the European market proved to be a formidable task, as Titan, accustomed to operating in a monopolistic environment in India, faced difficulties aligning with the exacting standards of European watch retailing. The ramifications were starkly evident in financial metrics, with net profits plummeting from Rs 23.5 crore in 2000-01 to a mere 11.5 crore in 2002-03. The consequential decision to cease European operations in 2004, amidst accumulated losses totaling 182 crores, underscored the resilience of Titan's Indian operations, which continued to yield profitability.

 

Bhaskar Bhat's Catalytic Leadership
A pivotal juncture in Titan's narrative unfolded with the appointment of Bhaskar Bhat as Managing Director in 2002, redefining the company's trajectory. Upon his entry, Titan's valuation stood modestly at 220 crores. Presently, it stands at a staggering 2,18,000 crores, positioning Titan as the second-largest entity within the Tata conglomerate, surpassed only by Tata Consulting Services (TCS). Titan's principal competitor during this epoch was Hindustan Machine Tools (HMT), specializing in analogue watches. 

Titan's strategic adoption of advanced quartz technology, coupled with a repositioning as a fashion statement targeting a younger demographic, set it apart from HMT's utilitarian offerings, solely facilitating timekeeping. A distinctive decision to directly engage with retailers, circumventing intermediaries, further distinguished Titan's approach. 

Unconventionally accepting only advance payments, Titan's foresight in tying retailers' capital to its inventory, initially met with resistance but ultimately proved instrumental in shaping its early financial success.
This strategy not only attracted entrepreneurs from diverse sectors to establish retail outlets but also promised enhanced margins sans intermediaries. Commencing with watches, Titan diversified its portfolio, introducing Tanishq in 1995 and subsequently expanding into eyewear with Titan EyePlus and fragrances under the Skinn brand.

 

The Tale of Tanishq: Navigating Purity and Trust
In the mid-1990s, the genesis of Tanishq materialized from Xerxes Desai's visit to the World Watch and Jewelry Show in Mumbai. The nomenclature itself, derived from 'Ta' (Tata) and 'nishk' (Sanskrit for ornament), embodied the Tata group's foray into jewelry. Yet, Tanishq faced initial challenges in capturing a distinct market share, contending with entrenched preferences for traditional family jewelers. 

Recognizing the predilection for 22-karat gold among Indian consumers, Tanishq recalibrated its offerings, aligning with indigenous designs and themes.
Tanishq's groundbreaking approach involved the incorporation of karat meter machines, a significant capital investment. This innovation, while ensuring purity, led to a revelation: 58% of examined jewelry fell below the 22-karat gold threshold. 

To instill confidence, Tanishq initiated a revolutionary exchange program, guaranteeing 22-karat gold for any piece above 19-karat, a strategy that resonated profoundly with consumers. Even during a period of economic slowdown between 2013 and 2016, Tanishq demonstrated adaptability by introducing gold exchange schemes and reducing making charges.

 

Rakesh Jhunjhunwala's Strategic Investment 

Rakesh Jhunjhunwala's foray into Titan's shares commenced in 2001-02, with a significant acquisition at Rs 30-32 per share. Accumulating approximately 12.5 lakh shares despite market fluctuations, Jhunjhunwala's foresight anticipated India's growth, retaining confidence in Titan even during price fluctuations—from Rs 1600 in 2008 to Rs 600 in 2009. His prophetic anticipation envisioned India's double-digit growth, culminating in a surge of Titan's stock margins from 10% in FY20 to 12% in FY22, validating his steadfast conviction.

1.2 THE STORY OF CRISIL 

Inauguration and Ascendance: The CRISIL Saga 

The embryonic stages of Credit Rating Information Services of India Limited, colloquially recognized as CRISIL, ushered in a transformative era as India's pioneering credit rating agency. Functioning as the vanguard of credit rating services, CRISIL not only proffered risk management systems and valuation frameworks but also provided astute advisory services. Its standing as India's preeminent rating company was underscored by a formidable market capitalization of 23,000 crores or $2.9 billion as of March 2022, rendering it a pivotal pillar in the investment portfolio of the esteemed Rakesh Jhunjhunwala. With a global footprint extending across eleven nations, including the United States, Australia, the United Kingdom, and Singapore, CRISIL's influence resonates globally. Nurtured under the auspices of Standard and Poor's Global (S&P Global Inc), the world's premier provider of credit ratings, benchmarks, and analytics in the global and commodity market, CRISIL's affiliations traverse diverse domains. Catering to a clientele ranging from small and micro-enterprises (MSMEs) to large corporations, investors, and top-tier global financial institutions, CRISIL's expansive reach extends to collaboration with policymakers and governments.

 

Genesis and Initial Challenges

The impetus for CRISIL's inception in the 1980s and 1990s emanated from the burgeoning need within the industry to catalyze the development of the bond market in India. Spearheaded by Narayana Vaghul and Pradip Shah, visionaries from ICICI Bank and HDFC Bank, respectively, CRISIL emerged as an institution pivotal to an entire industry revolving around credit ratings. However, the avant-garde concept of ratings encountered a receptive business environment. IPCL (Indian Petrochemical Corporation Limited) emerged as CRISIL's inaugural client, marking the commencement of its journey.

 

The Formative Growth Phases

The period from 1990 to 2000 witnessed a transformative trajectory for CRISIL. Technical assistance provided by CRISIL facilitated the establishment of Malaysia Berhad, a rating agency, and Maalot, an Israeli rating company, in 1992. CRISIL's Initial Public Offer (IPO) materialized in 1993, signaling its foray into the stock market business, complemented by the development and launch of the CRISIL500 Equity Index in 1995. A strategic alliance with Standard and Poor's (S&P) Ratings Group further augmented CRISIL's global standing, while the formation of India Index Services Limited (IISL) in 1996 marked its entry into advisory services. By 1999, CRISIL's credit ratings attained industry-standard status, with its Risk Assessment Model (RAM) becoming a banking system benchmark. The leadership transition with R. Ravimohan's elevation in 1994 marked an era of diversification, transforming CRISIL into a comprehensive ratings, research, and analytics company.

 

Global Expansion and Strategic Acquisitions

The subsequent growth phase, spanning 2000 to 2010, witnessed CRISIL orchestrating four strategic acquisitions that reshaped its business landscape. An acquisition in 2000 saw CRISIL absorbing INFAC, facilitating industry research and outlook. A London-based acquisition in 2003, EconoMatters Ltd, was divested by 2010 due to incongruities between management teams. CRISIL's second overseas acquisition in 2005, Irevna, propelled its foray into the global market, fostering a broader perspective. The 2010 acquisition of Pipal Research, a Chicago-based company, bolstered CRISIL's foothold in corporate business and investment research services, culminating in an unparalleled portfolio in the analytical offshoring space.

 

Rakesh Jhunjhunwala's Strategic Involvement

Rakesh Jhunjhunwala's discerning eye turned toward CRISIL in 2003 when he initiated the purchase of shares. With an initial acquisition of 10,000 shares at Rs. 150, Jhunjhunwala substantially increased his holding to 5.5 million shares by September 2006. The late Mr. Rakesh and Mrs. Rekha Jhunjhunwala currently command a 5.47% stake in CRISIL, valued at approximately Rs. 1200 crore, a testament to the enduring confidence in CRISIL's trajectory and enduring financial prowess.

SOURCE: THE BIG BULL OF DALAL STREET WRITTEN BY NEIL BORATE, APARAJITA SHARMA AND ADITYA KONDAWAR 

IMAGE CREDIT: ADOBE STOCK IMAGES