Tracking ace investors may not always pay off

Retail investors often like to take cues from iconic investors like Rakesh Jhunjhunwala. Actually, they might be better off aping the collective moves of institutional investors such as mutual funds, because even ace investors aren’t always right.

Iconic investors pick stocks that mutual funds may not fancy. While these stocks may initially deliver handsome gains, they could loose steam in the medium term. There could be timing issues too, with iconic investors exiting a stock too early, even as mutual funds manage to enter and register gains thereafter.

Wrong choice?

An analysis of large investments by eminent investor Rakesh Jhunjunwala over the period September 2010-12 in CNX 500 companies, shows that while some of his stock picks worked well, others didn’t.

Take the stock of A2Z Maintenance, in which Jhunjhunwala invested during its IPO and held 22.68 per cent stake by September 2012. The stock has lost 78 per cent since December 2010. Mutual funds do not hold this stock currently and would, therefore, have reason to be happy with their timely decision to exit the stock. Similarly, holding on to stocks such as McNally Bharat, A2Z Maintenance, and Praj Industries has proved counter-productive for Jhunjhunwala.

The stock of capital goods player McNally Bharat tanked 61 per cent in the last two years. But Jhunjhunwala was a buyer in the stock during this period.

His holding in the company has increased from 1.54 per cent in September 2010 to 4.82 per cent by the end of September this year.

Selling too early

There have also been stocks wherein the country’s widely followed investor missed the bigger rally because of selling too soon. For instance, Kajaria Ceramics’ stock trebled since his exit in April-June 2011. The stock has gained 163 per cent over the last two years.

Strides Arcolab is another example. The stock fell from Rs 450 levels to around Rs 360 during the period January-March 2011, when Jhunjhunwala sold his stake. But it reversed to jump three times thereafter to Rs 1,132 currently.

Interestingly, during the rally (March 2011-12) mutual funds increased their holding in Strides by 1.63 percentage points to 11.66 per cent.

But, profit-booking by mutual fund houses in the last six months has led to a decline in their holding to 9.56 per cent at the end of September.

What worked

It must be said that Jhunjhunwala’s exposure to stocks such as jewellery major Titan Industries, IT company Geometric and rating agency Crisil have delivered good returns over the last two years. However, fund houses have not raised their stakes in these stocks.

For example, Titan Industries stock, which possibly is his highest value holding with a current investment value of Rs 2,762 crore. Jhunjhunwala increased his stake in the stock from 8.6 per cent in September 2010 to 9.9 per cent by end of this September. During this period, the stock gained in excess of 60 per cent.

Similarly, IT stock Geometric has returned a handsome 74 per cent in the last two years.

Jhunjhunwala raised his stake from 7.72 per cent in September 2010 to 16.53 per cent at the end of September 2012.

Also, investment in recently de-merged and listed Prozone Capital (through Provogue India) fared well. The stock gained 36 per cent since its listing this September.

Some of the recent additions to the Jhunjhunwala portfolio were the Pantaloon Retail DVR, Geojit BNP Paribas and Delta Corp.

> nalinakanthi.v@thehindu.co.in

COMMENT NOW