Rakesh Jhunjhunwala’s portfolio at the time of his death
approximately
₹35,000 crore*** 62-65%
Estimated CAGR of portfolio since he started trading
Federal Reserve cuts rates as well. Future P-E expansion
The fourth reason that Rakesh Jhunjhunwala proffered was P-E expansion—the stock market would get re-rated. Indian corporates had become more efficient, their return on capital employed, or ROCE, had gone up. Their disclosure and transparency had also improved. In 2002, the trailing P-E of the Sensex was just
12. It is currently at around
25. Jhunjhunwala contrasted the interest rate of 1992 (18%) and the P-E of 1992 (50 times earnings) with the decline in rates to 11.5% in 2002 and P-E of just 12 times.
Is this valid today?
No. P-E has already expanded from historic levels and India trades at a premium to other emerging markets.
More money entering stocks The fifth reason that Jhunjhunwala offered was the increase in fund flows to the Indian stock market. He noted that the total flow in mutual funds (MFs) in 2001 was just about ₹2,000 crore, compared to the ₹30,000 crore that flowed into them during the IPO boom in the mid 1990s. He also noted that the development of India’s MF industry is set to explode after its release from ‘strangulation by UTI and other public sector MFs.’ Jhunjhunwala was also anticipating support to the market from pension and provident funds that did not invest in equities at the time.
Is this reason valid today?
Yes. In January this year, the monthly (not annual) flow into systematic investment plans alone crossed ₹18,000 crore. Today, India has about 45 asset management companies, most of them in the private sector. India’s EPFO (employee provident fund organization) now invests about 15% of its incremental corpus in equity. In the National Pension System, non-government subscribers can allocate up to 75% to equities.
The Indian trading system
In 2002, Jhunjhunwala wrote that the trading system had changed—brokers were no longer taking percentages but basis points. Physical trading had been replaced by ‘glass screens’ computerization. Badla, a stock market term, had been replaced by derivatives and dematerialization had been achieved at an extremely fast pace.
Is this reason valid today?
Yes. All the trends mentioned by Jhunjhunwala continued to gather momentum over the next two decades. Broader markets outperforming Jhunjhunwala also advanced a sixth reason— the nature of the rally since the 9 September 2001 low. He argued this was a robust rally with broader markets outperforming the benchmark Sensex, stocks hitting new highs far greater than stocks hitting new lows, resilience of the market in the face of negative news like India-Pakistan geopolitical tensions and the UTI fiasco.
Is this reason valid today?
Yes. Negative news like RussiaUkraine war, US Federal Reserve rate hikes and other reasons have not halted the rally.
Summing up
Jhunjhunwala concluded his piece by saying that India has a ‘Sachin Tendulkar copybook’ kind of shot—a prolonged decade-long bear market, capitulation, ray of hope, rebound with tremendous market internals, evidence of structurally improved fundamentals, compelling valuations and doubt or aversion in the mind of investors. Some of these factors are missing in 2024.
(For an extended version of this story, go to livemint.com)
I am a 35-year-old professional earn ₹1.5 lakh out of which I can invest half every month. I have used my savings to buy a house and now I have around ₹6 lakh in the bank. I want to start my own business in 5 years and I will need ₹75 lakh for this. How will I be able to reach this goal and what funds should I invest in?
—Name withheld on request
Usually, there are two ways to work on a monthly investment plan for goals that are for the long term. Your goal of creating a corpus of ₹75 lakh over five years has a reasonable time horizon. One approach is where you invest the same amount every month for the coming five years. By the end of the five years, you will accumulate ₹75 lakh. In this approach, you will have to invest ₹93,000 per month if we assume a 12% return per annum. The ₹6 lakh in your bank account can be retained as a contingency fund and let us not include that for your business goal.
As mentioned in your query, you are comfortable investing half of your salary i.e. ₹75,000 every month, the other approach of stepping up investment every year could work better for you.
You can start with a monthly investment of ₹70,000 and increase this investment annually by 15% from next year onwards. In such a case you will be able to reach your goal amount for your business by the end of 5 years if the return on investment is 12% per annum. This strategy will help you plan your savings and investments in the coming years in advance and also work on some other goals that you work out in the future.
A five-year horizon is good for equity mutual funds and you can consider investing in the following funds. Parag Parikh Flexicap (15%), UTI Nifty Index Fund (15%), ICICI Prudential Bluechip Fund (15%), HDFC Large & Mid Cap Fund (15%), Kotak Equity Opportunities Fund (15%), 360 One Focused Equity Fund (15%) and Nippon India Growth Fund (10%). Try to review your portfolio every six months to assess your progress and how your investments are doing.
Some of the reasons that the ace investor offered in 2002 for his turning bullish continue to be valid now
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