© Provided by CNBCTV18 Rakesh Jhunjhunwala vs Harshad Mehta: A lesson from the early 90s
By Ashish Rukhaiyar
Ace investor Rakesh Jhunjhunwala is believed to be one with a Midas touch. He is not called the ‘Big Bull’ without reason.
Over the years – he has spent 35 years in the market – he has showcased his bullish traits on most occasions and even at times when the bigger, older and more seasoned investors of that time were openly bearish.
But despite his bullishness, which has made him India’s richest investor, the billionaire Jhunjhunwala describes himself as neither an optimist nor a pessimist.
“If you ask if I am a contrarian, pessimist or an optimist, I will describe myself as a realistic... Trading or speculation requires you to accept reality as it is rather that as you would like it to be. Bhaav bhagwan hai, hum kadradaan hai. So you have to respect the price. You always have to wait for the right moment in trading,” Jhunjhunwala told Ramesh Damani in a CNBC-TV18 Wizards of Dalat Street interview in 2011.
Price may well be God but there was a time when the so-called God behaves in a way that defies logic and stump even the sharpest of investors.
This happened with Jhunjhunwala at the height of the 1988-92 bull run widely associated with Harshad Mehta’s reign on Dalal Street.
The year was 1991, In Jhunhunwala’s own words, the market valuations were “incredulous”. He had taken delivery of 14,000 shares of ACC that were cumulatively worth around Rs 75 lakh. Even at that time, he said he didn’t know why the shares were worth that much.
Jhujhunwala was of the view that the cement major’s September quarter result for 1991-92 was the best ever it could have produced (he was proved correct about this). And in December, the ace investor sold his stock at around Rs 3,400-3,500, after which the stock ran to Rs 10,000!
“I cannot say there were no regrets but I did learn some important lessons. I learnt that I will not sell only on the basis of fundamentals and opinions. I will also sell looking at market conditions,” he said.
“Having said that, we always knew the rise in January 1992 and beyond... valuations were incredulous and unsustainable,” Jhunjhunwala said. “You had equities at three times or four times replacement cost.”
Replacement cost was a theory popularized by Mehta, who said companies should be valued on the basis of the investments it will take to create a parallel firm, instead of on their earnings.
“You could sell 10 lakh Karnataka Ball Bearings, a closed down company at ₹80,” he adds.
While Jhunjhunwala may have learnt his lesson about the power of momentum and how irrationality can persist longer than you believe, he came out ahead in the 1992 crash.
One would imagine that conviction comes easily to ace investors such as Jhunjhunwala but that is not always so.
In the interview, Jhunjhunwala recalled another interview from early years in the market, which made him created doubts in his mind.
The year was 1989. V P Singh was the prime minister and Madhu Dandavate was the finance minister. There was huge talks about the budget being socialist in nature with some buzz that education would also be taxed.
While all the leading and well-known market veterans of that time were extremely bearish, Jhunjhunwala was of the view that Singh would never allow a budget that would hurt business.
“I thought the first part of liberalisation programme in 1983 was launched by V P Singh and I always thought he is a ‘thakur’ who understands business. So I never thought he will present a budget that will hurt business. He was the PM who was giving broad directions to the budget (but) everybody was humongously bearish,” said Jhunjhunwala.
Jhunjhunwala had been in the market for some time and his net worth around the time of the budget was around Rs 1.5-2 crore, which gave him the ability to take some risks. And risk he took by going long before the Budget.
“On the morning of the Budget... I developed cold feet. I thought I have taken this position and if things were against me... everybody that I talked to was bearish. I had lot of long positions and so in certain scrips I hedged and went short because I thought if the budget doesn’t work out as I envisaged, it will damage me financially. But as soon as the Budget came, stocks went up. And I just my positions!”
-Ashish Rukhaiyar is a business journalist who has worked with leading financial dailies, including Economic Times, Mint and Financial Express, among others.
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