Rakesh Jhunjhunwala, who was popularly known by his initials RJ, has quite appropriately been associated with operating successfully in probably the most enigmatic market. This is the stock market which is free from market intervention by the regulator, unlike bonds and currency where the RBI can play a guiding role.

Given the very idiosyncratic behaviour of stock prices, dealers are always trying to conjecture the future (with the past providing some clues), which need not always play out.

Also, there is the question of how short or long is the future. Often one says that equities give returns of 12-15 per cent in the long run and that one needs to be patient. But how long is the long-run — five years, 10 years or 20 years? Besides, there is also the case of timing the sale. Anyone wanting to cash-in on stock holdings when the pandemic started could have made minimal gains even if the portfolio was held for 10 years. These are questions which have no easy answers.

Rakesh Jhunjhunwala’s feats have now been narrated across a number of forums. RJ, known also as the Indian Warren Buffet, started with an investment of ₹5,000 in 1985; his portfolio is now valued at over ₹30,000 crore. Getting to this stage involves continuous and judicious investing in specific stocks with sharp exits when required. The micro strategy will never be known, but his significant holdings in specific stocks is common knowledge, thanks to the disclosures that companies have to make.

Therefore, there are names like Crisil or Star Health Insurance in this basket which may not be everyone’s pick as other popular names tend to dominate the investment landscape. Quite clearly, the manner of choosing stocks can be subjective if the investor is an individual or a broking firm. This is in contrast to, say, a mutual fund where the investment portfolio is revealed as per regulations.


Culture of equity

RJ’s inherent belief in the India growth story is a point highlighted by most experts. This as a macro view cannot be discounted because the Sensex, for example, when juxtaposed with the GDP growth over a period of 30 years, shows a good fit. Therefore, for an economy like India a potential average growth of 8 per cent per annum on a sustained basis is a fair assumption to make.

This is because of the opportunities that arise out of the lacunae in the system. There is high unemployment (which we like to call demographic dividend) and low levels of infrastructure (which opens the door for investment). Given the size of the population there will always be demand which will be increasing at a steady pace as jobs are created and incomes increase.

On the positive side India has a strong financial system that helps in flow of funds and some excellent regulation from RBI and SEBI which has stood the test of time. Therefore, the faith in Big India is well founded.

The acumen of RJ is probably what is hard to replicate. As has been revealed of late, some of the investments made have been in companies which would not be a part of the basket of investments of most fund managers. These calculated moves by RJ should hence be interpreted carefully by investors new to the market; as with Warren Buffet, his methods were unique.

So have people like Rakesh Jhunjhunwala spearheaded the equity culture in India? This is an interesting question because while his success story is worthy of any business case study, there have been several big investors who have not been able to replicate his success. Several individual investors have lost money.

Culture of equity

The creation of the equity culture has been a product of several developments. The opening of the capital markets post-1991 was the first step followed by the creation of SEBI which has worked tirelessly over 30 years to bring the market to this position. There have been learnings along the way; while regulation can enforce the rules, drafting them is hard because new regulations are evolved only in the face of deviations as the gaps are filled.

The growth story has played out well with the business cycles displaying various lengths of amplitudes. This has also been associated with progressive performance of companies, which again has not been even at all times; this is why the BSE 30 or NSE 50 which has now expanded to 100 have been the preferred picks.

The problem of going with the herd is that the marginal gains tend to be limited. Being a contrarian, which was also a characteristic of RJ, has worked. But choosing stocks is still a hallmark of a good investor. Similarly building a portfolio of the size which he has done requires a cogent strategy of holding periods because one has to wear the hats of both an investor and a trader.

That the capital market has lost a brilliant investor cannot be contested. His investment achievements have been closely followed by some investors. The market is big and there is evidently room for all kinds of players. At the same time the investment path can be complex as seen by the rather poor performance of several start-up companies, which have made promoters rich but not investors.

The answers to successful investing are still unknown and while there are other brilliant investors like Saurabh Mukherjea, who argue on the merits of investing in solid and staid companies like HDFC group or Asian Paints which get tagged to the India growth story.

Picking other stocks like how RJ had done is not easy for most investors.

The writer is Chief Economist, Bank of Baroda. Views expressed are personal

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