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
IMAGE SOURCE:
FOCUS ECONOMICS- IMAGE 1
GOLDMAN SACHS RESEARCH- IMAGE 2
INTERNATIONAL MONETARY FUND- IMAGE
