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The Big Bull of Indian Capital Markets - A Profile on Rakesh Jhunjhunwala

Editor, TRANSFIN
Feb 26, 2021 9:31 AM 5 min read
Editorial

Rakesh Jhunjhunwala, a person who has been branded as the "Warren Buffett of India" portrays a strikingly different persona from the Oracle of Omaha. 

While Mr. Buffett emphasises the value of trust, usually sharing his opinion when sought, Mr. Jhunjhunwala is brash and “out there”, considering it imperative to contribute to the dialogues moving Indian markets

Having most recently sounded a deathknell to Bitcoin, we take a moment to reflect on this man, much loved by the country’s business media and widely credited for generating wealth in excess of $3bn in a journey that allegedly started with an investment of ₹5,000 ($69) almost thirty-six years ago. On the way we evaluate his track record, how his calls have performed historically, and whether his take is even relevant in the present scheme of things. 

 

Who is Rakesh Jhunjhunwala?

One of India's better-known equity investors, Mr. Jhunjhunwala owns an asset management firm by the name of Rare Enterprises in partnership with his wife. He is the country's 38th wealthiest person with a net worth of over $3.3bn (as of February 24th 2021) and also holds memberships on the boards of multiple companies like Bilcare, Concord Biotech, Nagarjuna Construction, Provogue India, Viceroy Hotels and Geojit Financial Services, to name a few. 

Mr. Jhunjhunwala's early days as a trader can be traced back to when he was enrolled at the Institute of Chartered Accountants of India. He bought 5,000 shares of Tata Tea at ₹43 ($0.6) a piece and the stock skyrocketed to ₹143 ($2) in a matter of three months, turning his investment profitable by three times. 

Today, his public portfolio includes 39 stocks with a net worth equalling over ₹16,225cr ($2.2bn).

His biggest investments are in Titan (₹6,816cr/$941m), Tata Motors (₹1,300cr/$179m), Escorts Ltd. (₹826cr/$114m), Crisil (₹776cr/$107m), Lupin (₹732cr/$101m) and Jubilant Pharmova (₹713cr/$98m). In fact, his investment in Escorts was reported to have earned him ₹5.56cr ($768,180) per day since March 23rd 2020. 

He is known for making calculated investments and taking risks. In fact, on being interviewed about prevalent market risks recently, he remarked, "...the only long-term risk for India is [a] conflict with Pakistan". 

How Accurate Are His Bets? 

His first big win was Tata Tea, as mentioned earlier. Between 1986 and 1989, he made major investments in Blue Chip companies like Tata Power that fetched him ₹20-25L ($27,000-34,000) in spite of the market going temporarily into depression. 

Analysts believe that Mr. Jhunjhunwala's market métier lies in his meticulous predictions about the political climate of the country. In 1989, many in the industry expected the Budget to take a socialist form owing to the past policies of Prime Minister VP Singh's cabinet, thereby causing the markets to turn bearish. Mr. Jhunjhunwala, however, discarded such scepticism and welcomed the impending Budget which turned out to be business-friendly and eventually increased his net worth from ₹2cr ($276,000) to ₹40-50cr ($5.5-6.9m) within the next five months. 

Around the same time, he bought almost four lakh shares of Sesa Goa, a company that was deeply undervalued (stocks traded at ₹25-26/$0.3) during the ongoing recession. He bought shares at ₹28 a piece and sold them at varying prices (some at ₹60-65/$0.87, some at ₹150-175/$2.3 and some at ₹2,200/$30) as the next year witnessed a turnaround in value. 

Earlier this month, Financial Express reported that since the unveiling of the Union Budget 2021-22, Mr. Jhunjhunwala has earned ₹633cr ($87.4m) from five stocks in under nine days. He is currently sitting on over 47 million shares of Titan Company (almost 5.32% holding) which is trading at ₹1,446 ($20) against the average price of ₹5 ($0.06) that Mr. Jhunjhunwala bought in 2002-03. 

 

How Pertinent Are His Calls and Opinions? 

Mr. Jhunjhunwala has often made waves with his characteristically unapologetic commentary on major economic and political issues. He identifies himself as an admirer of Elon Musk but critiques his ideas on cryptocurrency, an investment he says will never partake in "even if it is offered to him at $5". 

He has advocated for a complete ban on cryptocurrencies and described them as highly speculative. He says that regulators should focus on creating a digital Rupee instead. He is also firmly of the belief that public sector banks are big opportunity creators (two of his banking stocks - Federal Bank and Karur Vysya Bank - have shot up by 15% and 25% respectively since the FM's Budget Speech this year). 

However, his ideas have very often taken erratic courses. In 2016 he applauded Raghuram Rajan for his "legacy" as the latter quit his tenure as the Governor of RBI. More recently, he was highly critical of Mr. Rajan's policies, often questioning his pessimistic view of the Indian economy in the last few years. Similarly, his wide apprehensions about the growth and prospects of internet companies were inconsistent with his backing of Nazara Technologies, India's first gaming tech company to seek an IPO in January 2021.

 

All That is Jhunjhunwala Ain't Gold 

In January 2021, SEBI started an investigation into Mr. Jhunjhunwala and members of his family for alleged insider trading in the shares of Aptech, an edtech firm in which he not only holds shares but also has managerial control. In 2005, Mr. Jhunjhunwala bought shares of the company at ₹56 ($0.7). Since then, his family's stake has risen to 49% of the company and market capitalisation has exceeded ₹690cr ($95.3m). 

In September 2016, after shares of the company reached the upper circuit value (maximum stock price limit on a given day), about 763,057 shares were bought under the names of Mr. Jhunjhunwala's wife and brother. These and other investments made in the company by the Jhunjhunwala family from February 2016 to September 2016 are being investigated for being done allegedly on the basis of unpublished price-sensitive information. 

Unfortunately, this isn't the first instance of similar accusations levelled against him. In 2018, he was questioned over suspicions of insider trading of Geometric, an erstwhile Godrej group company whose stocks had exceeded by 35% in value just months before its slated acquisition by HCL Technologies in 2016. 

Mr. Jhunjhunwala has opted for settlement of both these cases under a consent mechanism. Under the SEBI (Settlement Proceedings) Regulations, 2018, a consent mechanism is a process under which violations are settled outside the court for the payment of a fee and without admission of guilt. 

Although this seems like a time-conserving and legally-accepted (although highly questionable from a rule of law perspective!) plausible deniability framework, it also presents a very persuasive (and almost convincing) case establishing the guilt of the accused. Is it a far stretch to draw a parallel between Mr. Jhunjhunwala's own fate and his judgments on cryptocurrencies as vehicles of investment: that they are speculations of the highest order?!

FIN.

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