How Rajiv Khanna invests his cash

Hailing from Chennai, Rajiv Khanna studied engineering at IIT Madras and labored at two corporations earlier than organising his personal enterprise. His enterprise, Kwality Ice Cream, grew to become worthwhile and was offered to Hindustan Unilever. The cash he obtained from this grew to become the seed capital for his investing journey.

Khanna is understood to be a media-shy individual and one who prefers to maintain his investing model to himself. But he opened up about his funding journey and magnificence on the current Tamil Nadu Investor Association’s (TIA’s) annual ‘Bullet Proof Investing’ seminar.

“He has been a secretive investor for a very long time,” said Rahul Goel, former chief executive officer of Equitymasters.

Here is a summary of what he said:

Investment journey

He first bought shares of Satyam, the company known for carrying out India’s largest corporate fraud until 2010, before the dotcom bubble. He candidly told the audience that he bought Satyam because his neighbor’s son worked there and he thought it was an interesting company.

As the internet boom was in full swing, he made a lot of money on Satyam and a few other tech stocks. But when the mania finally ended and the dot com bubble burst, he lost a lot of money on these investments. Nevertheless, he had made some money at the end of the dotcom crash.

This allowed him to continue to invest through the next big rally of 2003-07. The same thing happened. He made a lot of money but also suffered some losses when stock markets were hit by the global financial crisis in 2008. He pared some of his gains during this downturn but was profitable on a net basis. Also, in 2016-17, Khanna did extremely well as mid-cap and small-cap stocks shot up, but again lost a bit when the cycles turned.

Fast-forward to the covid-19 pandemic, and Khanna says he sold out early as he panicked. He sold a large chunk of his portfolio around March 2020 and was not quick to re-enter when the markets rallied subsequently.

“I told them (his friends) that the world was coming to an end, the apocalypse is here,” Khanna mentioned on the TIA seminar, recalling the time when markets began to get better in April 2020. He mentioned he invested closely in gold and in China as he thought their valuations have been enticing.

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(Graphics: Mint)

Investment technique

Khanna mentioned he has a portfolio of 500 shares. Every day, he seems to be on the 30-day each day transferring common (DMA) of his holdings and at any time when a inventory strikes beneath it, he sells the place. He holds on to shares which might be buying and selling above their 30-day DMA. He mentioned this filter will permit him to exit the market earlier than the present euphoria in small- and mid-cap shares ends.

He additionally mentioned that till 2018, since there was no capital-gains tax, he might enter and exit shares within the brief time period with out worrying an excessive amount of about taxes. That modified in 2018 and he started setting off his short-term capital beneficial properties with long-term capital beneficial properties. However, Khanna is anxious in regards to the earnings tax division classifying his buying and selling as enterprise earnings, which can’t be adjusted in opposition to capital beneficial properties of subsequent or prior years (inter-head adjustment is just allowed in the identical yr).

Khanna’s answer for this has been to spend money on mutual funds. That’s as a result of when a mutual fund does the identical factor – promoting or investing – it doesn’t need to pay any taxes. Taxes are paid solely when the mutual fund unitholder redeems his or her items.

Khanna mentioned he purchased a mutual fund with a low quantity of belongings underneath administration however didn’t identify the fund. Although he’s transferring a few of his cash to mutual funds, he mentioned he’s not absolutely into it as he thinks the overwhelming majority of mutual funds apply buy-and-hold investing. He categorised this in cricket parlance as a Test match, however mentioned what he’s actually after are those that may play T20 matches – that’s, purchase and promote quickly to achieve alpha.

Schemes run by Quant Mutual Fund have a few of these traits. These funds actively purchase and promote shares (evident from excessive churn charge) and still have comparatively a small corpus in comparison with different funds.

A case for lively investing

At a time when lively investing is quickly shedding floor to passive investing, Khanna made a powerful case for the previous. He mentioned, “There’s a common view that he (Warren Buffett) preaches purchase and maintain. It’s partly true and partly not true. If you undergo his inventory holding interval, the typical holding interval is six months. His portfolio turnover is pretty excessive. It was once even larger when he began out. Now that he manages a big portfolio, it has come down.”

“Also, in a recent article, he says you give me $100 million and I will give you 50% CAGR. He himself acknowledges that active management is far better than passive management so long as you have a small portfolio,” he added.

Khanna mentioned his investing model most intently matches that of Peter Lynch. “He had one thing like 1,500 shares and over 15 years or so, managed to ship about 24% CAGR (compound annual development charge). He’s top-of-the-line fund managers we’ve had and even his portfolio turnover ratio was actually excessive – about 300% per yr,” he said.

“Once in a while, you will come across a special situation where you are reasonably confident. You must make use of it and hit a six when the time comes,” Khanna concluded.

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Updated: 15 Sep 2023, 07:43 PM IST