An IIT Madras graduate, Rajiv Khanna sold his ice cream manufacturing business to Hindustan Unilever in 1995. He reinvested the proceeds in a milk factory. Dolly initially invested the proceeds in fixed deposits. Over time, this investment was routed to stocks—the beginning of a hugely successful investing career.
Today, Dolly Khanna’s portfolio is tracked by lakhs 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. @RJ Stocks, a Jhunjhunwala fan Twitter handle, has 1.41 lakh followers. Another website, rakesh-jhunjhunwala.in, says it is ‘inspired but not endorsed’ by the investor. An unverified Instagram profile in his name (@rakeshjhunjhunwala_) has 1.38 lakh followers. Those who are on social media, no doubt have a huge following. Vijay Kedia has 5.72 lakh 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 with stakes above 1% every quarter. These disclosures are widely scrutinized—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 position in a competing firm, company B, through an associate or an affiliated entity. The celebrity investor has effectively hedged his bet. Now, a blind follower would 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 name and 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 best and 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 some 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, rose. 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 backed 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 a significant part of Jhunjhunwala’s fortune. CRISIL has also risen 5.5 times over the past decade.
In retrospect, Jhunjhunwala’s portfolio followed the 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 cap companies. The larger ones among these are stocks that he has watched grow from small to large-cap 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 first purchase was IT services exporter Satyam Computers. He learned about the company since a neighbour’s 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 dot-com bubble deflated. Despite the crash, Khanna’s portfolio remained four times its starting value in 2001-02.
The roller-coaster ride, however, made him quit the stock market for a few years. His second big success came in 2004. Khanna invested in Unitech, a real estate company.
“The company was valued at ₹100 crore and Citibank and a few other foreign fund managers had stakes in it. I felt that their office alone would be worth ₹100 crore. I put in some small amounts— ₹5-7 lakh—and forgot about it. In 2008, there was a big boom in the stock market and the money grew to almost ₹25 crore," Khanna told students at the same lecture.
The price of Unitech rose from ₹1-2 in 2004 to ₹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 investor 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). However, 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 first 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 fortune over the next few years. Page Industries, a maker of innerwear, loungewear and socks, traded at around ₹300 at the beginning of 2009. By 2012, the stock rocketed 10 times and currently trades at ₹43,726 (as of 19 July). Maheshwari also invested in Bajaj Finance and Avenue Supermarts in 2017-18, both of which turned out to be multibaggers.
Vijay Kedia, another long-time investor, made his money in stocks like Cera Sanitaryware 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 make mistakes. And herein, lies a crucial lesson for smaller retail 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 of around ₹2 (as of 20 July), down from ₹16.25 it was trading at on 1 April 2016. NCC Ltd is down 25% over the same period. DHFL collapsed in 2019 and was delisted in 2021, with its erstwhile 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 ₹18.48 crore in 2021. His wife, Rekha Jhunjhunwala, paid another ₹3.19 crore.
“They (the star investors) often make mistakes, and losing ₹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 is 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 of an 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 to 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 favourable 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 2018 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 portfolios could be disastrous. Many of the factors that aided their play two decades back simply don’t exist.
