a few days back. The transcript of the interview can be viewed below.
When you first ventured into the stock markets, it must have been a huge gamble 20 years ago. You qualified as a CA, what made you take that step?
Rakesh Jhunjhunwala: My father was also interested in stocks. When I was a young child, he and his friends would drink in the evening and discuss about the stock market. I would listen to them and one day I asked him why do these prices fluctuate. He told me to check if there is a news item on Gwalior Rayon in the newspaper, and if there was Gwalior Rayon's price would fluctuate the next day.
I found it very interesting and I got fascinated by stocks, I self-taught myself. My father told me to do whatever I wanted in life but at least get professionally qualified.
Rakesh Jhunjhunwala and Shankar Sharma debate
I was always a reasonably good student so I took up chartered accountancy. In January 1985, I completed my CA. I told my father I wanted to go to the stock market. My father reacted by telling me not to ask him or any of his friends for money. He, however, told me that I could live in the house in Mumbai and that if I did not do well in the market I could always earn my livelihood as chartered accountant. This sense of security really drove me in life.
But your first real large investment was Sesa Goa, I am curious to understand Sesa Goa, a commodity company, what prompted you to invest in Sesa Goa?
Sesa Goa had a big fall because there was a depression in the iron ore industry and then prices for the next year had been considerably raised about 20-25%. The stock was available abysmally cheap around Rs. 25-26. There was a projection of a very good growth in profitability in the next year but nobody seemed to believe it.
When I saw the facts, I wanted to invest but I did not have capital. Between 1986 and 1989 I must have earned Rs 20-25 lakhs. After 1986, the market went into a big depression for two three years but I put that money in Tata Power and the Tata Power stocks became about 1100-1200.
Now I was worth Rs 50-55 lakhs. I bought 4 lakh shares of Sesa Goa in forward trading, worth Rs 1 crore. I sold about 2-2.5 lakh shares at Rs 60-65 and another 1 lakh at Rs 150-175. The prices then went up to Rs 2200 and I sold some shares. I did some other trading too. I had net worth of about Rs 2 - 2.5 crore.
Was there any point of time when you came close to thinking that this is not for you or was it always a goal from the beginning?
I would not say that I did not come to a point where I had doubts in my mind, but my family circumstances and the support of my parents and my wife and my brother always let me do what I wanted in life. As long as I was not risking anything which I had not made with my own hands and I was playing with my money, I thought it was fine.
Your mother insisted that stock market is for gamblers, your wife is saying that she is a good luck charm, there was perhaps some amount of family resistance when you started your entry into stocks.
I would not say there was some kind of resitance, there was only some kind of apprehension. They never stopped me from going, they only warned me. There can be no greater well wisher for me in life than my mother. My mother says every man’s luck is his woman.
People will laugh at me, but when they ask me to make a wish for the next life, I will say I want the same parents, same brother and sister, same wife, same friends.
Are you superstitious, to what extent do you feel that luck has something to do with it?
I would not say I am superstitious. When you acknowledge that you have been lucky or you have been successful because of circumstances which are not what you have done or created, then you get humility, you do you feel that I am what I am because of what I am. You feel you are what you are because a set of circumstances came together and those circumstances were not brought together only by you, they were also brought together by fate. For example if Rakesh Jhunjhunwala has earned some wealth in life, the fact that the index was 150 when he came here and today the index is 17500, is one of the biggest contributors of the creation of the wealth, yes.
Did you ever in your wildest dreams imagine that we would be at these levels?
When index was at 150 points I did not have so much idea of markets but surely in 2002-2003 I felt that markets will see levels and India will see prosperity which we can't imagine right now. I still hold that view.
What does Rakesh Jhunjhunwala do when he does want to take some time out, indulge himself, is there something you enjoy doing?
I enjoy reading, I enjoy watching food shows.
Are you a big foodie?
Yeah, look at my size. Basically my favourite food is street food. I love the Chinese food on the streets, also I love the dosa. I do not get the taste in the paav bhaji anywhere so I tell my wife and then we make it at home. I basically like relaxing, I do not do much physical activity.
Now we know three sides of Rakesh Jhunjhunwala, investor, trader and businessman, you have got a fourth side also and a very prominent fourth side which is the philanthropist, the philanthropist Rakesh Jhunjhunwala because I have been told that you got big plans to construct a children’s home.
I would not call myself a philanthropist and all, it is too early but surely see, we must realise one thing that the giver of this wealth is God, do not think we have earned it because we are smart. Ultimate giver is God and it casts a duty on us that this wealth be used for good social purposes. So it is the aim and ambition of my life that a good portion of the wealth that I earn would be used for good social purposes.
The only sure income that I have is dividend income and I spend one third of my dividend income in charity and I hope to do that in future and also with time I would like to endow at least Rs. 500 crores to a foundation and really work on charitable activity.
Everyone knows that you are both a successful long term investor as well as a trader, how do you manage to balance both?
Short term trading is for short term gain. Long term trading is for long term capital formation. Trading is what gives you the capital to invest. My trading also helps my investing in the sense I use a lot of technical analysis for trading at times.
If the stock is overpriced, I should sell but my trading skills tell me that the stock can remain overvalued or get more overvalued. Hence, I hold on to my investments.
So, I think they complement each other in many ways but they are two distinct compartments totally.
You make investment decisions quickly and with a lot of conviction. We got examples how you made a decision to buy Praj or Matrix, that is unique. When you are investing long term money, you need to assess it, you need some time assessing.
See, one thing first of all, all assessments can only be made up to a point. You are investing in the future, the future is uncertain. So you cannot make any prediction of profits to any preision and you look at the opportunity; you look at the people managing, you look at the competitive ability.
If the margin of what you think the value is and if you think the future can be so great then why spend time assessing it. If I thought that Matrix profits are going to be hundred crores and Matrix market cap is 150 crores then what should I invest, what should I research and what should I think. So when the opportunity is so great...
It is interesting that some of your best ideas have come not because of insider information, not because of insider edge, they have come because of simple common sense and news which is there in public domain.
Yes, they have, because many a times the insiders themselves do not know what is happening. My idea is to credit the factors which drive the portfolio which are the opportunities, the competitive ability, the people, the valuation, the return on capital.
So if those circumstances are present then why will profits not arise.
Welcome back, Samvat 2065, Indian markets have given astonishing return of 80%. Where from here, this Diwali to next Diwali, do you see Indian markets?
I see very very very very bullish for the very very very long term. Bullish for the short term and maybe you could see a correction in the mid-term.
What extent of a correction could we see?
I wish I knew.
Have you made any large investments in the last three months?
I have not made large investments in the last three months because I have been fully invested right through the fall and right through the rise but I did make some investments in the last one or two years.
You have often indicated that it is important to buy but it is equally important to buy at a right price, are prices right?
Well, prices are right. There can be no generalisation, you know, look at the equity, you can still find investment opportunities at these price levels. In 2003 bull market, I made some of the best investments in which I made the largest money.
I made the investment in Praj Industries in January 2004 with the index of 5500 and it nearly doubled and I sold some part of it about 250 times appreciation even now.
Any area that you have been looking to exit or you think it is the right time to exit over the last few months or now?
As far as the exits are concerned, I keep buying-selling something, nothing substantial. The variability in my portfolio will not be more than 5% or 3%. Personally, I have decided that at some point of time, regardless of companies, looking at the macro, I am going to exit all my investments because the history of bull markets tells us that excesses go to such levels and to recapture them takes decades.
What are the biggest driving factors for the markets going ahead?
Well, driving factor for the market is that there is a transition from West to the East. We have good regulation, good trading platforms, there is mountain of savings; we are just going to go up every year driven by growth in GDP demographics, growth in financial markets.
The foreigners have no choice but they will invest where growth is 10%, I think that is what is driving markets.
Is that a case where next 12 to 24 months' earnings do not expand and PE multiples will expand?
I do not think so. I think earnings will expand faster than what people are anticipating and already none of the results have disappointed.
You have no exposure to real estate, very little exposure to technology and very little exposure again to commodities.
Well, I will not buy real estate even today. Look at the way you can get value for a stock by issuing an old stock and there is the continued circle to get constant earnings. It is speculation of the highest order.
What happens in real estate price discovery is most imperfect and I do not like the general real estate.
Although bullish in the residential real estate in India, I do not think there are models which are sustaining.
As far as technology is concerned, I think it is a mature industry. I am bearish on US dollar, I have large investment in the unlisted space. I have some exposure to commodities and I have a large investment in oil companies.
Maybe it was by design of accident, I missed the cement boom and I never invested again. I missed the cement boom in 2003-2004-2005. As far as other industries are concerned I was bullish on Tata Steel because of the Corus factor, but I did not buy.
So what would Rakesh Jhunjhunwala buy today?
Well, what I buy today and what I sell today is a matter of personal...
Which sector would you look at?
I would look at all India sensitive sectors, retailing, banking, infrastructure, pharma.
How do you see yourself, Rakesh Jhunjhunwala, the family man, the investor or the businessman?
See, the only truth of life is death and that when I am going to die I would say boss, just leave me for three hours, I would buy one stock, I will do some trading, I will spend some time with my children, my wife, I will have two drinks and then you can burn me. So it has to be combination of everything.