N. Jayakumar of Prime Securities asked Rakesh Jhunjhunwala whether there are any areas where investors can still “make a lot of money”.
The Badshah’s reply was reassuring. He said that there are a still a “lot of investable companies in India” and that he still found the valuations of some companies “extremely attractive”.
Rakesh Jhunjhunwala, however, pointed out that we have to move away from the much-fancied and high P/E companies and find stocks that are high on quality but which are out of fancy at present.
The Badshah gave the example of what he and Ramesh Damani had done in 1998-99 when there was a similar raging bull market. Stocks like Himachal Futuristic were much in fancy and were commanding high valuations. At the same time, stocks of PSUs like Shipping Corp of India (SCI) were totally out of favour and available at throwaway prices. The duo bought truckloads of SCI stock.
“We underperformed the market vastly” Rakesh Jhunjhunwala reminisced. While Himachal Futuristic went up a mind-boggling 40 times, SCI hardly moved. However, soon the tables turned. Himachal Futuristic crashed to the ground because it had no fundamentals while SCI soared to the sky.
“So if you have the conviction and you are ready to face periods of underperformance, there is a lot of opportunities” the Badshah advised.
Rakesh Jhunjhunwala also made it clear that he is not interested in buying stocks quoting at an exorbitant P/E of 60 to 70 times. He added that he is prepared to “compromise quality at a price”.
The Badshah gave an interesting example to make his point. He said “If someone gives me United Breweries and United Spirits at Rs 200 crore marketcap, I will buy it despite its lack of corporate governance”.
What the Badshah is referring to is the fact that at one time in the past, United Breweries and United Spirits were out of favour owing to their perceived lack of governance even though they had a stranglehold on the entire liquor market. Investors (which included Rakesh Jhunjhunwala and Ramesh Damani) who had the foresight to buy these stocks at that time made a fortune. So, if an opportunity to buy a dominant player comes by, and the price is cheap, one should grab the opportunity even if there are lurking fears of quality, is Rakesh Jhunjhunwala’s precious advice.