Saturday, September 14, 2013

Midcap crash leaves Rs 1,000 crore hole in big bull Rakesh Jhunjhunwala’s portfolio

Following the leader may not always be in people's best interests, especially when it comes to stock selection.

Many small investors, who fashioned their portfolios after that of Rakesh Jhunjhunwala, the so-called Warren Buffet of India, discovered this painful lesson with the recent mid-cap crash eroding his portfolio value by Rs 1,000 crore.

Stocks owned by Jhunjhunwala — Bilcare, A2Z Maintenance and DB Realty, Autoline Industries, Hindustan Oil Exploration and Delta Corp — which quoted at high multiples despite poor results, were hammered down as negative sentiment originating from stocks used in margin funding spread towards other fundamentally weak stocks.

Many small investors purchased these stocks not for their sound fundamentals or prospects but merely because they were part of billionaire investor Rakesh Jhunjhunwala's portfolio.

This is borne out by 21 of the 29 listed stocks held by Jhunjhunwala that have declined between 20% and 70% so far this year compared with a 3.5% fall in benchmark Sensex and a 15% fall in the BSE Mid-cap index.

Nearly 10 companies he invested in, including Aptech, McNally Bharat and Delta Corp, reported adecline in revenues for FY12 from a year ago. The likes of Hindustan Oil Exploration, Prime Focus, A2Z Maintenance,Sterling Holiday, Viceroy Hotels and Alphageo reported net losses for the nine months ending December 2012 (FY13).

Further, more than half of promoters' holdings in eight companies including DB Realty, Viceroy Hotels,Pantaloon Retail and NCC have been pledged as on December 2012.

Even Jhunjhunwala's favourite stock picks such as Titan Industries, Crisil and Rallis Industries underperformed the broader market. The only five stocks to have outperformed the indices are Lupin,Geometric, Prime Focus, Agro Tech Foods and Adinath Exim. So has Jhunjhunwala's strategy to 'Buy Right Hold Tight' gone wrong? Some market experts think so.

"Rakesh is known for investing in concept-based stocks for the long term, when nobody usually touches them," said Kush Katakia, founder of Beanstalk Advisory. "However, this strategy seems to have backfired as investors dumped these stocks during the recent midcap crash, and opted instead for companies with sound financials."

An e-mail query to Jhunjhunwala on the subject went unanswered. Call it negative sentiment or coincidence, stocks in Jhunjhunwala's portfolio have been hammered one after the other by Dalal Street over the past few weeks. The latest in the line is Bilcare.

The stock plunged 48% in the past four trading sessions through Friday. Jhunjhunwala, the second biggest public investor in the company after Deutsche Bank, held 8.51% in the company.

The billionaire investor entered this counter in June 2006, buying about 11.6% stake at an average price of Rs 360. The stock, which hit a record ofRs 1,830 in January 2008, currently trades at Rs 72.

A2Z Maintenance, in which Jhunjhunwala held 19.92% stake, has plunged 70% so far this year and 94% since its listing in December 2010. The Jhunjhunwala-backed diversified infrastructure company declined 20% on the listing day, after which he bought an additional 16 lakh shares.

The recent pick of DB Realty, in which Jhunjhunwala bought nearly 12.5 lakh shares in October last year at Rs 90 per share, 83% lower from its record high of Rs 540 in March 2010, further declined 63% this year and currently trades at Rs 57.65.

"The overall sentiment, especially in the midcap segment, has affected stocks owned by Rakesh," said another analyst who declined to be named. "A slowdown in business, pledging by promoters, over-leveraging, failure to service debt and ratings downgrades were the prime reasons for the recent carnage in midcap stocks, and Rakesh's portfolio was no exception."

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Rakesh Jhunjhunwala picks stake in Tata Communications

By: Ajaya Sharma

(According to sources, big bull Rakesh Jhunjhunwala & Associates bought 16 lakh shares in Tata Communications from Tata Sons via a block deal on June 28, 2013.)

It may just be a Rs 25-crore block deal, but its set mutual funds and the markets aflutter. Tata Communications, which has corrected 32 per cent in the past two months, is seeing buying from large players in the market, not to mention funds.

According to sources, big bull Rakesh Jhunjhunwala & Associates bought 16 lakh shares in Tata Communications from Tata Sons via a block deal on June 28, 2013.

The promoters had to sell 0.57 per cent stake in the company to comply with SEBI shareholding norms. Tata Communications' latest disclosures show reduced promoter stake on the BSE.

Dhanki Securities has been broker to the block deal.

E-mail queries written to Rakesh Jhunjhunwala and Tata Group went unanswered.

Institutions such as Kotak, Prudential ICIC and Edelweiss have been showing interest in the company and have increased their stake in the month of June.

Tata Communication is sitting on 740 acre land bank in Delhi, Maharashtra & Tamil Nadu.

The government holds about 27 per cent stake while the Tatas Group hold around 51 per cent stake in the company.

The stock ended at Rs 164.70, down 0.09 per cent, on the BSE. It touched a high of Rs 169.30 and a low of Rs 164 in trade today.

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