Menaka Doshi, the charming and effervescent anchor at CNBC-TV18 is a very determined woman. She has a razor-sharp mind, knows what she wants and how to get it.
Rakesh Jhunjhunwala, the Badshah of Dalal Street, was the object of her attention recently. Though Rakesh initially tried to fob her off, Menaka was more than a match for him. She pinned him down and got him to talk extensively about his favourite stocks and investment strategy. The best part is that she also got the Badshah to reveal the stocks that he is “extremely bullish” on. We should listen in because there is much to learn.
Concentrated portfolio & the rule of portfolio weightage:
The first important point that Rakesh Jhunjhunwala revealed is that when you are building your portfolio, you must bet big on high conviction stocks.
You will realize the importance of portfolio weightage when you read Basant Maheshwari’s book “The Thoughtful Investor”. Basant says “Very few people realize that having the right portfolio weights is more important than picking up the right stocks”. Basant explains how, when you are making a diversified portfolio, you must ensure that the high conviction stocks have more weightage than the medium/ low conviction ones. “A 15 bagger with a 3% allocation makes a career but a 15 bagger on a 30% allocation can make a life” Basant says.
Rakesh Jhunjhunwala presents a real-life example of this. Rakesh stated that 60% of his portfolio are in just three high-conviction stocks: Titan, Lupin and Crisil. The next 25% are in six to eight medium-conviction stocks while the balance 15% was spread out over 20 low-conviction stocks.
In fact, I have already analyzed Rakesh Jhunjhunwala’s portfolio in great detail and came to the same conclusion.
Time to bet on cyclical, pharma and software stocks:
The Badshah pointed out that though he is sector neutral and likes cyclicals, pharma and software stocks, he has more positions in cyclicals than in the software and Pharma. He also revealed that within cyclicals, he was invested in industrials, financials & infrastructure stocks.
The Badshah also categorically declared “I am bullish on pharma and software for medium term” (6 to 9 months).
There are two significant points in this. The first point is that as Basant Maheshwari points out, if you buy cyclical stocks at the time when they are in the dumps, you stand to make a great deal of money. Rakesh is suggesting that the time is ripe to buy cyclical stocks (he also later identified which stocks to buy).
The second point is that Pharma and InfoTech stocks have underperformed owing to the strength of the rupee. This means that they are available at cheap valuations.
If you recall Bharat Shah’s inspiring advice, he pointed out that investors should grab Infotech stocks because the valuations are reasonable, they are fantastic, high quality businesses, they generate outstanding return on capital employed and are superb free-cash generating machines.
Bharat Shah has also emphasized that the software stocks have a long-term good double digit earnings growth ahead of themselves for a multiple year period. The same can be said about Pharma stocks.
If you are looking for the best Pharma stocks, you have to read the comprehensive reports on the topic by Daljeet Kohli, Karvy & SBI Caps.
Stocks on which Rakesh Jhunjhunwala’s is “Extremely Bullish”:
Now this is the part where you have to compliment Menaka Doshi because she has done what no man (or woman) has done i.e. get the Badshah to talk freely of the stocks that he is extremely bullish on.
The Badshah came out with all guns blazing in favour of Tata Motors. He said:
“When you are talking of cyclicals the biggest beneficiary in India of cyclical market is Tata Motors. When you talk of cyclicals the biggest seller of trucks, the next persons market share is 20 percent. So, therefore you should but Tata Motors if you want to buy cyclicals.”
It should be noted that the Badshah has been bullish on Tata Motors for a long time and it has rewarded him well. You should also note that HDFC Sec have in their top stocks for Namo India 2.0 recommended Tata Motors DVR as a strong buy.
Another cyckical stock that Rakesh Jhunjhunwala recently bought is Orient Cement. He bought 17.10 lakh shares for about Rs. 9 crore.
The Oracle of Mumbai also revealed that he is “very bullish” on Escorts, DHFL, Nagarjuna (where he has doubled his position from 15m to 30m shares), Aurobindo Pharma, Titan & Lupin. The Badshah is confident that each of these top-quality stocks will continue to do well in the future.
Ride your winning stocks:
Another bit of precious advice from the Badshah is that you must hold on tight to your winning stocks. When Maneka asked him whether he planned to sell the stocks which had doubled, tripled etc, Rakesh replied “If I get so much love from a girl, I will leave her or what? I will never quantify it in amount of profit.”
Alembic pharma got decimated today. What a fall from the peak of 314 ? Looks quite weak that it might go below 200. I started nibbling at it but given that I already had it earlier at 270s. Is it worth picking up a big chunk? This was one of Daljeet Kohli’s picks but did he change his stance, once it reached that magic 314? Either case, the reaction today was overdone, according to me. I also started nibbling in some IT as well. For all you know, these 2 sectors will be dull for the next 6 plus months. Thoughts/comments?
I was told that IT will take a hammering, and a pretty solid one, as most Indian IT companies do not make software products worth patenting, they just provide cheap labour, i.e. cyber coolies. With the forex inflow increasing and the rupee gaining against the dollar, the IT firms will lose their edge of cheap labour, however this will take a few quarters as most firms use currency contracts to lock in their profits.
I too would like to have others’ views and comments on IT and the effect of a hardening rupee on IT and Pharma.