Their stories are not really the rags-to-riches sort. Yet,many stock market investors are seen Inspired by them. One such legendary story is that of a couple from Chennai – Dolly and Rajiv Khanna.
An IIT Madras graduate. Rajiv Khanna sold his ice cream manufacturing business to Hindustan Unileverin 1995. He reinvested the proceeds in a milk factory. Dolly initially invested the proceeds in fixed deposits. Overtime, this investment was a beginning of a huge investment portfolio.
Today, Dolly Khanna’s portfolio is tracked by millions of investors with a vehemence that rivals those following investor Rakesh Jhunjhunwala, known as the ‘big bull’ of the Indian stock market. Similarly, other successful investors such as Radhakishan Damani, Shivanand Mankekar. Vijay Kedia and Basant Maheshwari, have built a cult following. Some of them like Jhunjhunwala avoid social media presence. However, they tend to inspire a host of fan pages and fan handles on @RJStocks, Jhunjhunwala’s fan Twitter handle. It has 1.41 lakhs followers, another website rakeshjhunjhunwala.in says it is inspired but not endorsed by the investor. An unverified Instagram profile (of his name Rakesh Jhunjhunwala) has 1.38 lakh followers. Those who are on social media. No doubt they have a huge following. Vijay Kedia has 5.72 Lakhs followers on Twitter, while Basant Maheshwari has 2.3 lakh followers on the same platform.
While many investors ape their portfolios. The approach is fraught with significant risks publicly listed companies disclose the names of shareholders whose stake is above 1%. Every quarter, they disclose the name of the shareholders whose stake is more than 1%s. The financial media often writes about a star investor investing in a stock and these stories are widely read. However there is no way to gauge the shareholding of these investors in companies where they hold less than 1%.
A big investor can hold stocks in company A In his own name. He could hold a larger portion in competing firm, Company B, through an associate or an affiliated entity. Every celebrity investor has effectively hedged his bet. Now, a blind follower mold be misled into thinking that company A’s prospects are better than they are.
Alternatively, if the celebrity Investor holds 1%in company A in his own nameand another 4% in the same company through affiliates. He can quietly exit the stock without his fans ever getting wind of it. Until he sells that last 1%.
Therefore, the picture that is collated from public disclosures is partial at be stand presented with a time lag due to the quarterly nature of such disclosures.
Also, the origins of large fortunes are not properly understood. “Many of India’s big stock market investors made their money through leveraged bets (borrowed money) in the initial stages of their investing journeys. These initial bets are not so well known.” says Dhirendra Kumar, CEO of Value Research, an Investment advisory firm.
Investing using borrowed money is an exceedingly high-risk strategy for a new investor.
JHUNJHUNWALA’S BETS
Let’s dive into sonic of the initial bets of the star investors and what made their fortune.
Rakesh Jhunjhunwala started investing in the 1980s. He studied chartered accountancy but did not practice instead. He watched the stock markets. His brother was also a chartered accountant and his clients trusted Jhunjhunwala to manage some of their money.
Jhunjhunwala’s first success was reportedly a contrarian bet on the 1990 budget by finance minister Madhu Dandavate, while most investors expected a hostile budget from the socialist politician. He reposed confidence in Prime Minister V.P.Singh and the ruling party. Janata Dal. The budget turned out to be market friendly and Jhunjhunwala made a killing.
The early 1990s were eventful years for the Indian markets Stock broker Harshad Mehta, also called the big bull back then, raised. The Sensex galloped from around 1,000 points to over 4,000 points in a matter of just two years (between 1990 and 1992). This Bull Run would have aided Jhunjhunwala’s early Investments. But, over the years, he is known to have hacked small companies, which eventually exploded in value. His two largest wealth creators: CRISIL, a ratings agency, and Titan, a Tata Group company that sells jewellery and watches. The stock price of Titan has shot up approximately 10 times in the past 10 years, building significant part of Jhunjhunwala’s fortune. CRISIL has also risen 5.5 times over the past decade.
In retrospect, Jhunjhunwala’s portfolio followed he typical path of how every star investor makes their money. These investors buy undiscovered small cap companies and hold on to them as they compound. Even today, Jhunjhunwala mostly holds mid or small companies. They larger ones among these are stocks that he has watched grow from small to largecap status.
LESSONS FROM LYNCH
Dolly Khanna’s investment decisions are made by her husband, Rajiv Khanna. He began his stock market journey in what would seem rather unplanned today.
His firm purchase was IT services exporter Satyam a computers. He learned the company since a neighbors’ son worked there. He told students during a lecture at IIT Madras In 2018. A surge in the prices of tech companies multiplied Khanna’s fortune 10-fold in a few years before everything came crashing down in 2001 when the dotcom bubble deflated. Despite the crash, Khanna’s portfolio remained four times its starting value in 200-02
The roller-coaster ride, however made him quit the stock market for a few years. His second big success came in 2001. Khanna invested in unitech, a real estate company.
The company was valued at 100 crore and City bank and a few other foreign fund managers had stakes in it. I felt that their office alone would be worth 100 crores. I put in some small amounts 5-7 Lakh and forget about it in 2008. There was a big boom in the stock market and the money grew to almost 25 crores. Khanna told students at the same lecture.
The price of unitech rose from Rs. 1-2 in 2004 to Rs. 519.7 at its peak on 11 January 2008, before collapsing back to being a penny stock after 2015.
“I was perhaps lucky but I was also following what Peter Lynch says about investing in companies whose products you like.” Khanna told the students, recounting more instances of buying stocks inspired by items that his wife used. Peter Lynch, An American Investors and a mutual fund manager, is also a proponent of value investing.
SMILE & MORE
Shivanand Mankekar, a Mumbai based professor, has made his fortune from multibagger investments returns that are many times the cost in fashion retailer Pantaloons and alcohol firm United Spirits. Radhakishan Damani is the promoter of Avenue Supermarts (D-mart). He has made several other successful investments in companies such as VST Industries, a cigarette maker.
Basant Maheshwari attributes his success to four stocks purchased at different points of time in his life – Pantaloons, Page industries, Bajaj finance and Avenue Supermarts. These investments were made after a decade of trying and failing to build serious wealth.
In the early 2000s, Maheshwari taught management, finance and accountancy to make ends meet. His big success, Pantaloons was purchased around this time and it did well in the 2002-07 boom period. The shock of the 2009, recession made him think of alternative income sources and he launched an investment advisory practice. However, he continued to dabble in stocks and bought his second multi bagger- Page Industries in 2009. This restored his for over the next few years. Page Industries ,A maker of innerwear and socks, traded at around Rs. 1300 at the beginning of 2009. By 2012, the stock rocketed 10 times and currently trades at Rs. 43726 (as of 19 July). Maheshwari also invested in Bajaj Finance and Avenue Supermarts in 2017-18, both of which turned out to be multibagger.
Vijay Kedia, another long-time investor, made his money in stocks like Cera Sanitary ware and Aegis Logistics. In a recent interview with Mint, Kedia spoke about his current portfolio. His investment style is summed up by the ‘SMILE’ acronym – small in size, medium in experience, large in aspiration and extra-large in market potential. At present 90% of his current portfolio is in small and mid-cap stocks.
THE MISTAKES
Celebrity investors also mistakes and herein, Iies a crucial lesson for smallerretail investors.
Vijay Kedia had invested in Stewarts and Lloyds, an engineering and construction services company. In 2004, his entire capital is now wiped out- the company filed for insolvency in 2017.
Rakesh Jhunjhunwala held companies such as Viceroy Hotels, NCC ltd and DHFL in his portfolio in 2016. Viceroy Hotels is now a penny stock around Rs. 2 (as of 20 July); down from Rs. 16.25.It was trading at on 1 April 2016. DHFL collapsed in 2019 and was delisted in 2021, while promoters facing criminal proceedings.
It is also possible that some large investors have access to information that ordinary retail investors do not. Jhunjhunwala settled a case pertaining to alleged insider trading in the shares of Aptech, paying Rs. 18.48 Crore in 2021. His wife Rekha Jhunjhunwala paid another Rs. 3.19 crore.
“ They (investors) often make mistakes, and losing Rs. 25-30 crore is no big deal for them. However, if a retail investor follows them and gets trapped in some of these losing picks, they can go bankrupt.” Dhirendra Kumar of Value Research says.
NOTHING’S CHEAP
Many of the celebrity investors made their fortunes at a time when markets were available ‘cheap’ – the late 1990s and early 2000s. The market has now matured. A large number of mutual funds and Institutional Investors track stocks, armed with sophisticated analytical techniques.
According to Basant Maheshwari, small caps are unlikely to compound today in the way they did 20 years ago when some of these companies delivered a 30% CAGR (compound annual growth rate).
That is because such companies are already owned by private equity funds and the value has already been captured by such funds, he told Mint.
Starting out with a sizeable capital also an essential Ingredient for any Investor who wants to replicate the success journey. Many of the star investors we talk about today received some kind endowment from family (as with Rajiv Khanna) or clients of family members (as with Rakesh Jhunjhunwala),without a large inheritance. A small Investor would have 10 Invest a substantial part of their savings, in high-risk high-reward stocks.
One way to speed up wealth creation is to borrow money and Invest, a strategy that Jhunjhunwala has used in the past. However, leverage can cut both ways it can drive one to bankruptcy when the market falls.
India’s tax structure has also turned less favorable to equity investment compared to what it was 15-20 years ago. The long-term capital gains tax was abolished in 2005 and stock market investors enjoyed more than a decade of tax free gains. Dividends were also tax free. The budget brought back the tax at 10% on gains above 1 lakh. Dividends are taxable, too.
A combination of grit and luck has allowed the celebrity investors to accumulate large fortunes. While small Investors can definitely learn from their life stories, blind aping of their portfolio could be disastrous. Many of the factors that aided their play two decade stock simply don’t exist.
By Neil Borate, Mint Publication