Rakesh Jhunjhunwala, also known as the Big Bull, passed away in August 2022, after an illness. It marked the end of a storied, celebrated career as an investor - Jhunjhunwala’s picks were closely followed in the Indian stock market, and his buys and sells could trigger a market-wide frenzy. He started his investment journey in 1985 with Rs 5,000, and at the time of his death, had an estimated net worth of $5.8 billion. 

According to Forbes' Rich List, Jhunjhunwala was the 36th richest person in the country. One of his notable early successes was his investment in Tata Tea, where he purchased 5,000 shares at Rs 43 each in 1986 and saw the price rise to Rs 143 in three months. Some of his other recent portfolio investments included Crisil, Titan, Praj Industries, and Aurobindo Pharma

Jhunjhunwala owned the stock trading firm Rare Enterprises. Since his passing, his portfolio has been managed by the Rare Enterprises team, headed by Utpal Sheth and Amit Goela. 

Jhunjhunwala was a famously hands-on investor. He got into the details, regularly quizzed company management, and attended earnings calls – he would dial into the Titan quarterly earnings calls frequently. With new management now at the helm of Rare Enterprises, it is only natural to question whether its investment strategy has changed. We take a look at how the portfolio has evolved post-Rakesh Jhunjhunwala.

Net worth dropped for two consecutive quarters under Rare team

The Big Bull’s net worth rose sequentially for each quarter from Q4FY20 to Q3FY22, increasing approximately 4X during that period. But after his passing, the net worth dropped for two consecutive quarters from Rs 34,804 crore in Q3FY22, to Rs 25,397.5 crore in Q1FY23. The portfolio has since then shown some recovery as Indian markets rose.

Jhunjhunwala's portfolio net worth stood at Rs 31,988.1 crore in Q4FY23. The fall in net worth was driven by declines in holding values, not stakes sales. 

The provisional net worth for Q1FY24 stands at Rs 38,885.3 crore, up 21.6% since the previous quarter, but shareholding filings for the quarter are still pending

Slight changes in market cap preferences at Rare

In Q1FY23, Rakesh Jhunjhunwala held stakes in 9 large-cap companies, 11 mid-cap companies, 13 small-cap and 3 micro-cap companies.
 

Under Rare Enterprises, there have been some modifications in the portfolio's market cap preferences. The firm holds stakes in nine large-cap companies, while the number of mid-cap and small-cap companies has reduced to 7 and 11 respectively. It had also invested in a new microcap, Raghav Productivity Enhancers, by  Q1FY23. 

What stocks did Rare add and reduce stakes in? 

The management team at Rare Enterprises made changes to the portfolio by adding new stocks and reducing stakes in others. In Q3FY23, Rare purchased a 0.9% stake in Rallis India (an agrochemicals company) and Federal Bank, taking the total stakes up to 10.3% and 3.5%, respectively. It also bought 0.8% and 0.6% stakes in banking and finance companies Geojit Financial Services and Canara Bank, during the same quarter. It also increased its stakes in Tata Motors and NCC. 

Major changes in terms of additions by Rare came in Q4FY23. The firm added Raghav Productivity Enhancers (other industrial goods company) and Sun Pharma Advanced Research (a pharma company) to the portfolio. It bought 5.1% and 1.9% stake in them respectively.
 

During Q3FY23 and Q4FY23, Rare Enterprises cut stakes in Anant Raj (a realty company), Man Infraconstruction (construction and engineering company) and cement manufacturer Orient Cement. The firm sold a 1.6% stake in pharma company Dishman Carbogen Amcis in Q3FY23, before reducing its stake below 1% in Q4FY23.  Among other major stake cuts, Rare sold a 1% stake in Singer India (it now holds 7%). 

Sector preferences remain unchanged

There’s not much difference in the sector preferences of Rare Enterprises and Rakesh Jhunjhunwala. The top five preferred sectors are the same. Textiles, apparel and accessories continues to be the top preferred sector with 36.6% of the total portfolio value in Q4FY23, the same as Q1FY23. 

The banking and finance sector follows with a concentration of 25.7% in Q4FY23 (down 1.3 percentage points since Q1FY23). Retailing makes up 10% of the portfolio in Q4FY23, marginally lower than Q1FY23.
 

However, there have been some other changes in the portfolio since Rare's control. The general industrials and consumer durables sectors occupy a smaller section, while the healthcare equipment & supplies sector is no longer part of the portfolio, as compared to Q1FY23.

Rare Enterprises' newly added stock rises by 12.2% since the addition

D B Realty, Man Infraconstruction and Indian Hotels were the top three performing companies in Q1FY23, with one-year price changes of 121.1%, 98.8% and 59.7%, respectively. Currently, the best-performing stocks in the portfolio are Karur Vysya Bank, Aptech and NCC, all showing a one-year price change of above 100%. Raghav Productivity Enhancers, which was added by Rare, increased by 12.2% since its addition in Q4FY23. 

Comparing risk preferences: Rare Enterprises vs Rakesh Jhunjhunwala

When we compare the three-month and one-year beta values, Rakesh Jhunjhunwala’s portfolio had an average three-month beta of 1 and a one-year beta of 1.1 in Q1FY23, making it more volatile than the overall stock market (the stock market beta is considered to be 1, any stock with a beta more than 1 is more volatile, and less than 1 is less volatile). 

In comparison, the current average beta under Rare Enterprises is 0.6 for three months and 0.8 for one year, making it less volatile than it used to be. This suggests that Rare may be more risk averse compared to Rakesh Jhunjhunwala in their stock picks. 

Among the new stocks added by Rare Enterprises, Raghav Productivity Enhancers and Sun Pharma Advanced Research have one-year betas of 1.2 and 0.5, respectively. Stocks in which Rare reduced its stake to below 1% - Anant Raj, Man Infraconstruction and Orient Cement - have betas above 1, indicating that they are relatively riskier stocks.

Rare Enterprises takes a cautious turn

Despite a few additions to the portfolio, including a small-cap and a mid-cap company, Rare Enterprises has largely maintained the sector preferences established by Rakesh Jhunjhunwala. However, there are signs that Rare is more risk-averse compared to the renowned risk-taker and finder of diamonds in the rough, Rakesh Jhunjhunwala. 

While the long-term outcomes of this approach are yet to unfold, it remains to be seen whether Rare's more cautious approach will prove fruitful in India’s stock market. India’s GDP recovery means that established players in key sectors will rise with the rising tide of the economy. But the real skill of Jhunjhunwala as a stock market investor was in finding and betting on young, fast-growing companies early. Investors will be watching to see if the old magic is still there.