The bloodbath on Dalal Street that has retail investors sweating and foreign investors running has reportedly erased over a tenth of the market value of the top 10 bets made by ace investor Rakesh Jhunjhunwala. Hailed as the Warren Buffet of India and the Big Bull of D-Street, Jhunjhunwala has notched up big notional losses in portfolio stocks, especially in the midcaps space.
According to The Economic Times, the veteran investor has seen many of his portfolio stocks tumble up to 75 per cent. This has resulted in notional losses and a fall in his portfolio value below Rs 10,000 crore mark.
The BSE midcap barometer posted a steep rise in the past four years - surging 55% in 2014, 7.4-8% in the next two years and an impressive 48% in 2017 - but the trend reversed this year. The index has fallen as much as 16% this year after Sebi re-defined market-caps and mutual fund categories, as well as growing concerns over the valuations commanded by these stocks.
A study on 27 of his portfolio stocks suggested that all except three stocks have offered negative returns this year. According to BloombergQuint, in contrast to the performance of Jhunjhunwala's top bets, the benchmark Nifty 50 index has returned more than 3% gains.
Dewan Housing Finance Corporation Ltd (DHFL), which dived 53% amid worries stemming from IL&FS defaults, is the worst performing stock of the month and the year so far in Jhunjhunwala's portfolio. That cost him Rs 325 crore in just a month.
Seven more of his holdings have posted over 50% drops - Mandhana Retail Ventures (down 75%), Jaiprakash Associates (74.61%), DB realty (63%), Geojit Financial Services (61%), Aptech and Prozone Intu Properties (58%), and Bilcare (51%).
Others such as Orient Cement, TV18 Broadcast, Prakash Industries, Man Infra Construction, Autoline Industries, Ion Exchange (India), Edelweiss Financial Services, The Federal Bank, Karur Vysya Bank and Delta Corp are down between 30-50%.
Then there's Titan Company Ltd., his biggest bet, which reportedly lost Rs 418 crore this year, Jhunjhunwala's biggest loss in the year so far. However, three of his bets are in the green - FirstSource Solutions is up 51% followed by VIP Industries (up 17.63%) and Lupin (1.80%).
The above serves as a cautionary lesson against coat tailing or side car investing, a strategy where a retail investor blindly follows the investment pattern of a celebrity investor. According to experts, the biggest risk in this strategy is that stocks tend to rise on announcement of a marquee investor's moves. Therefore, retail investors enter the stock at higher price points which results in lowering of their profit prospects. Besides, star investors have much more information that may not be available in public domain; they often know when to enter and exit from a stock. But retail investors are not so fleet-footed, hence their exposure to risk is higher.
So where are the markets headed here on? Porinju Veliyath, MD of Equity Intelligence India, previously told the daily that the ongoing market correction is a short-term pain for genuine long-term investors and this shall pass soon. Indeed, despite two big corrections this year, midcaps collectively seem to be in recovery mode.
As many as a third of 950-odd midcap stocks on BSE have posted an uptick of 20% or more over their 52-week lows. Of these, 40 stocks have more than doubled their share prices and 130 others have spiked as much as 50%.
According to analysts, the retail investors with a high risk appetite may hit paydirt if they go bottom-fishing in these second-rung stocks.