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    Rakesh Jhunjhunwala's

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    Rakesh Jhunjhunwala gave a presentation at the Foundation for Liberal And Management Education (FLAME) Institute on November 14, 2009. In his presentation, he discussed the history of markets and India's economic growth and equity markets. He explained why India's economic growth is inevitable due to factors like demographics, entrepreneurship, and reforms. He expressed optimism about the long-term prospects of Indian equity markets and discussed his approach to asset allocation, investment selection, and exiting investments. He shared lessons from his career and advice for those embarking on their careers and lives.

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    Rakesh Jhunjhunwala's

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    Rakesh Jhunjhunwala gave a presentation at the Foundation for Liberal And Management Education (FLAME) Institute on November 14, 2009. In his presentation, he discussed the history of markets and India's economic growth and equity markets. He explained why India's economic growth is inevitable due to factors like demographics, entrepreneurship, and reforms. He expressed optimism about the long-term prospects of Indian equity markets and discussed his approach to asset allocation, investment selection, and exiting investments. He shared lessons from his career and advice for those embarking on their careers and lives.

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    Rakesh Jhunjhunwala gave a presentation at the Foundation for Liberal And Management Education (FLAME) Institute on November 14, 2009. In his presentation, he discussed the history of markets and India's economic growth and equity markets. He explained why India's economic growth is inevitable due to factors like demographics, entrepreneurship, and reforms. He expressed optimism about the long-term prospects of Indian equity markets and discussed his approach to asset allocation, investment selection, and exiting investments. He shared lessons from his career and advice for those embarking on their careers and lives.

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    3K views34 pages

    Rakesh Jhunjhunwala's

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    neo269
    Rakesh Jhunjhunwala gave a presentation at the Foundation for Liberal And Management Education (FLAME) Institute on November 14, 2009. In his presentation, he discussed the history of markets and India's economic growth and equity markets. He explained why India's economic growth is inevitable due to factors like demographics, entrepreneurship, and reforms. He expressed optimism about the long-term prospects of Indian equity markets and discussed his approach to asset allocation, investment selection, and exiting investments. He shared lessons from his career and advice for those embarking on their careers and lives.

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    Presentation at

    Foundation for Liberal And Management


    Education (FLAME) Institute
    14 Nov 2009
    Rakesh Jhunjhunwala
    R^RE Enterprises
    Outline
    • History of Markets
    • India’s Economic Growth and it’s Equity Markets
    • Inevitability of India’s Economic Growth
    • Indian Equity Markets in the Long-Run
    • Asset Allocation and Compounding
    • Investment Approach
    • Exiting from an Investment
    • My Life and Career
    • Advice
    HISTORY OF MARKETS
    CAPITAL MARKETS | EVOLUTION
    Industrial Revolution

    Financing/ Separation of ownership


    Risk Sharing from management

    Investors

    EXIT / LIQUIDITY

    RAISON D’ETRE OF CAPITAL MARKETS


    CAPITAL MARKETS | FUNCTION

    • Temples of Capital Allocation . . .


    • . . . To channelise Capital to most productive Assets
    • Condition precedent for Risk Capital to exist and to grow
    • Barometer of Economic environment, Corporate confidence and
    Capital flows
    • In an Efficient Capital Market, appropriate Valuation may be
    delayed, but cannot be denied
    INDIA’S ECONOMIC GROWTH AND IT’S EQUITY
    MARKETS
    • Valuation are a slave of Earnings

    • Earnings are a function of Economic growth

    • Earnings growth = 1-1.5x of Nominal GDP growth


    – If Real GDP growth = 9%, Inflation is 5%,
    – Then Nominal GDP growth= 9%+5%=14%
    – Hence, Earnings growth = 14 - 21% (1-1.5x of NGDP)

    • The bull market in Indian equities (present and future) is a


    direct derivative of India’s economic growth
    INEVITABILITY OF INDIA’S
    ECONOMIC GROWTH
    INGREDIENTS OF INEVITABLE
    GROWTH
    • Culture of Tolerance
    • Skill-sets
    • Entrepreneurship
    • Democracy
    • Demographics
    • Savings rate
    • Orderly evolution
    • Take-off
    CONFLENCE OF REFORMS TAKE OFF

    Financial sector Infrastructure Development

    Telecom Confluence Tariff reduction


    of Reforms
    Insurance Competition Bill

    Power VAT / Indirect taxes

    Capital Market Direct taxes


    INDIAN EQUITY MARKETS IN THE
    LONG RUN
    MARKET INFRASTRUCTURE IN PLACE

    • Infrastructure for equity flows in place


    – Modernized trading system + Dematerialization
    – Corporate governance thru market’s sword
    – Effective Regulatory environment
    – Competitive private sector Mutual Fund industry
    – Blossoming Insurance Sector
    – Inevitability of FII Investments

    • Tax paradise
    – Short term capital gains at 15%
    – No Long term capital gains tax (STT regime)
    – Dividend tax free
    POTENTIAL TO ENHANCE EQUITY OWNERSHIP

    Distribution of Financial Savings

    17.4% 8.9% 5.1% 1.1% 4.9% 15.0%


    100%

    80%

    60%

    40%

    20%

    0%
    FY 91 FY 96 FY 01 FY05 FY 06 FY 11

    Cash Deposits Life Insurance


    Govt schemes Equity & debentures
    FUND FLOW FOR EQUITY MARKETS

    Savings Composition
    USD Bn 1994 1995 2004 2005 2006 2007 2008 2009 2010 2011
    GDP 274 323 601 694 798 904 1,026 1,163 1,319 1,496
    Gross domestic savings 62 80 174 202 235 271 315 365 425 494
    Savings to GDP % 22.5% 24.8% 28.9% 29.1% 29.5% 30.0% 30.7% 31.4% 32.2% 33.0%
    Financial savings 35 46 83 97 133 156 184 216 253 299
    - % of GDP 12.8% 14.4% 13.8% 14.0% 16.7% 17.3% 17.9% 18.6% 19.2% 20.0%
    Savings in Equity/Deb/MF 4.7 5.5 0.1 1.1 6.5 5.9 11.8 21.2 34.0 44.9
    - % of Financial Savings 13.5% 11.9% 0.1% 1.1% 4.9% 3.8% 6.4% 9.8% 13.4% 15.0%

    Fund flow for market


    USD Bn 1994 1995 2004 2005 2006 2007 2008 2009 2010 2011
    Sources of funds
    Domestic savings 4.7 5.5 0.1 1.1 6.6 5.9 11.8 21.2 34.0 44.9
    FII investment 3.6 3.8 11.4 8.9 12.5 8.0 10.0 13.0 16.0 20.0
    Total 8.3 9.4 11.5 10.0 19.0 13.9 21.8 34.2 50.0 64.9
    Uses of funds
    Domestic equity issues 3.2 5.5 4.8 6.5 7.1 6.5 7.5 10.5 14.8 20.7
    Secondary market 5.1 3.8 6.7 3.5 11.9 7.4 14.3 23.7 35.2 44.2
    Total 8.3 9.4 11.5 10.0 19.0 13.9 21.8 34.2 50.0 64.9
    ASSET ALLOCATION AND
    COMPOUNDING
    BELIEF SYSTEMS

    Realism - Safety of

    1 a Conviction
    3 Capital - a
    Religion

    Absolute
    Rigidity -

    2 a
    Taboo 4 Returns - a
    Passion
    ASSET ALLOCATION

    • 1971 – 80 Gold 30% p.a. compounded


    • 1981 – 90 Nikkei 21% p.a. compounded
    • 1991 – 2000 NASDAQ 26% p.a. compounded
    • Stock, bonds and gold
    • 1987 – 2006 Sensex 19% p.a. compounded
    • Why Equities have / will deliver superior returns
    IMPORTANCE OF CONSISTENCY

    Future Value of Rs.1 lac per annum


    Compound Annual Return
    Years 5% 10% 15% 20% 25%
    5 127628 161051 201136 248832 305176
    10 162889 259374 404556 619174 931323
    15 207893 417725 813706 1540702 2842171
    20 265330 672750 1636654 3833760 8673617
    25 338635 1083471 3291895 9539622 26469780
    CHOOSING AN INVESTMENT
    WHAT TO LOOK FOR
    • Attractive, addressable external opportunity

    • Sustainable competitive advantage

    • Scalability + operating leverage

    • Management quality + integrity

    • EVA positive over investment horizon

    • Valuation: Price – Value divergence


    TEN COMMANDMENTS FOR INVESTING

    • Be an optimist! The necessary quality for investing success.


    • Expect a realistic return. Balance fear and greed.
    • Invest on broad parameters and the larger picture. Make it an act of
    wisdom, not intelligence.
    • Caveat emptor. Never forget this four-letter word - R-I-S-K.
    • Be disciplined. Have a game plan.
    • Be flexible. For Investing is always in the realms of possibilities.
    • Contrarian investing. Not a rule, not ruled out.
    • Its important what you buy. It’s more important at what price you buy.
    • Have conviction. Be patient. Your patience may be tested, but your
    conviction will be rewarded.
    • Make exit an independent decision, not driven by profit or loss.
    EXITING AN INVESTMENT
    EXITING AN INVESTMENT

    • Asset Allocation
    • Review of Critical Factors
    • Relative Opportunity
    • EPS or EPS Expectation Peaks
    • PE Absurdity
    • Not Driven by Profit/Loss - Independent
    MY LIFE & CAREER
    UTPAL ON RAKESH JHUNJHUNWALA
    • Independent thinker
    • Passion for equities. Measured risk taker
    • A trader, an investor, a venture capitalist
    • Not afraid to make mistakes, but affordable ones
    • Made a mistake. Recognise it. Write-off. Move on. Never regrets, but always learns.
    • No religion, no emotion, no ego, no rules. But, means remain more important than the
    ends
    • Accept with an open heart and mind that the only constant is change. The urge to learn
    is a journey, not a destination
    • Magic of emotion-less leverage, with discipline
    • Patience born out of conviction. Be greedy, but be long-term greedy – understanding the
    role of time
    • His word is his bond, highest integrity
    • Loves his independence
    MY ETHOS
    • Prayer
    – God’s Grace, Elder’s Blessings

    • Aim
    – To win all wars despite losing many a battle

    • Motto
    – Where the head is held high, and the mind is without fear . . .

    • Logo - R^RE Enterprises


    – Rare, Enterprises, Green, Compounding

    • Baseline
    – Insight, Intellect, Integrity
    EVOLUTION
    • Early days (1984-89)

    • Learning curve (1990-1994)

    • Defining time (2001- 2009)

    • Aspiration (2009 - . . . .)
    EARLY DAYS (1984-1989)

    • Humble beginning – Rs 5000


    • Initial hurdles
    • Self-belief
    • Inspiration – healthy influences
    • No pain, no gain
    • Initial trades
    • Capital protection
    • Tax compliance and efficiency
    PARADIGM SHIFT (1990 -1994)

    • Inflexion point – Madhu Dandvate budget

    • First market cycle experience – agony & ecstasy

    • Shorting and pyramiding

    • Prudent betting

    • Ambitions cannot overshoot market opportunity

    • Understanding the importance of liquidity


    LEARNING CURVE (1995 -2000)

    • Rudder-less period

    • Introspection

    • Importance of reading, experiencing and learning

    • Participation in tech boom

    • Private equity learning – the value of scale

    • Value picks – PSU jackpot


    DEFINING TIME (2001 – 2009)

    • Once in a lifetime opportunity – India and its equity markets


    • Growth stories
    • Concentrated and diversified portfolio
    • Maturity
    • Buy right, hold tight – exit in frenzies
    • Meaningful stakes
    • Value adding investor
    • Organization building
    • Resisting temptations
    ASPIRATION: 2009 AND BEYOND
    • Institutionalization

    • Perpetual view

    • Other asset classes

    • Other geographies

    • Investor of choice

    • Philanthropy

    • De-leveraging

    • Strategic thinker

    • People, skill focused


    ADVICE
    AS YOU EMBARK ON PROMISING LIVES

    • Whatever you can do or dream you can, begin it. Boldness has genius, power
    and magic in it.

    • Do something you love

    • The means are as important as the end

    • Aspire, but never envy

    • Be paranoid of success – never take it for granted

    • Build a fighting spirit – take the bad with the good

    • Though the horizon seems far and difficult, when you reach a horizon, you
    realise how many more horizons are beyond it . . .
    Thank you!

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