Rakesh Jhunjhunwala Recoups Rs. 224 Crore Titan Loss

Rakesh Jhunjhunwala must be carefully watched at all times because even in his inactivity, there is much to learn about investment strategy.

This time, the Badshah of Dalal Street teaches us that when you are lucky enough to have bought into a top quality stock you must ignore short-term aberrations and sit tight on the stock instead of panicking and selling it off.

On 11th June 2013, the RBI made the grim announcement that all imports of gold could be made only with 100% cash margin and that credit was prohibited.

This news spelt doom for all jewellry companies because it upset their well established business model.

Investors panicked and dumped jewellry stocks. Titan slumped to a low of Rs. 200 on 13th June 2013.

In the mayhem that followed, Rakesh Jhunjhunwala stood by passively with a gentle smile on his lips even though he suffered a staggering loss of Rs. 224 crores + on his mammoth holding of 81,767,220 shares (8+%).

Instead, in an incredible display of statesmanship, Rakesh Jhunjhunwala came forward to comfort investors that though Titan’s Return on Capital Employed (ROCE) could go down, the Return on Equity (ROE) would not be impacted.

What was implicit in Rakesh Jhunjhunwala’s advice is that these regulatory changes would raise the entry barrier for the entire industry with the result that the weaker players would make way for the stronger and dominant players like Titan Industries. So, investors need not panic because Titan Industries will spring back and all problems would be over in the medium term.

Well, Rakesh Jhunjhunwala’s prophecy came true because today, in a stunning reversal, the RBI reinstated the gold-on-lease model that Titan depends on for its’ business model though it imposed other curbs on jewellry exports (which Titan is not involved in).

The proof of the pudding is in the eating. At the CMP of Rs. 275, investors who stood by passively on that fateful day of June 13, 2013, have taken home a hefty gain of 37% while those who panicked and sold off their shares are left with regrets.