‘Skin in the game’: the financial journey of Ravi Dharamshi

File image. (REUTERS) (HT_PRINT)
File image. (REUTERS) (HT_PRINT)


Dharamshi on his PMS that manages assets worth 5,200 cr and the time he spent under Rakesh Jhunjhunwala.

Ravi Dharamshi fondly recounts the years he spent working for ace investor, Rakesh Jhunjhunwala—that’s where he began his professional investment journey. “I spent a good four years with him until 2007, and those were the best years in the stock market. I came in at a time where there was a lot of money to be made. This boosted my confidence," says Dharamshi, the founder & CIO of ValueQuest Investment Advisors, a Sebi-registered portfolio management company that manages assets worth 5,200 crore. Dharamshi talks about his personal investment journey in an interview with Mint as part of the special Guru Portfolio series. Edited excerpts:

How did your stock investing journey begin?

I hail from a family that has been associated with equity markets for over four decades. My dad started off as a sub-broker in the late 1970s. He worked his way up in the market and became a broker, and we made enough money to set aside some capital for investing. The bulk of my investing knowledge has come from my dad. He was very keen that I learn about the stock market and he used to discuss with me, whatever he did or didn’t do, and why. While I was hooked on to the markets, I never took it as a serious career option until I went to the US for my management degree (2000-2002). At that time, I read all the Berkshire Hathaway newsletters and the investment classics and that’s when I realized that I wanted to be in the equity market.

When I went to US, the Dotcom boom was still on, and everybody wanted to do something with technology. I did a diploma in advanced computing but somewhere along, I knew that I didn’t want to do coding all my life. So, I switched to the field of finance.

ValueQuest's PMS strategies.
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ValueQuest's PMS strategies.

Did you make any money during the Dotcom boom years?

No, I did not participate in either the Dotcom boom or the bust. At that point of time, I was just understanding what was happening around me. I refrained from investing while I was studying. This turned out to be a boon because when I returned to India in 2002, we had one of the best bull markets for the next five years.

Take us through your professional investing journey.

So, when I came back from the US, I started working for Rakesh (Jhunjhunwala). I spent a good four years with him until 2007, and those were the best years in the stock market. And it was a lot of learning for me. A lot of people say it’s good if you start in the markets with a loss so that lessons are well ingrained. But I came in at a time where there was a lot of money to be made. This boosted my confidence.

Also, over the years, we (my dad and my brothers) had realized that broking was not a business where your interests are aligned with that of your clients. And we would rather focus on investments. So, we stopped our active broking business around 2000.

Post 2007, I joined my brother who was running a research firm, ValueQuest. My colleague and college mate, Sameer Shah, joined me then and we debated on what we should do going forward as we already had a ready base of clients who wanted us to manage their money. My dad was of the opinion that if we lose client money, we will lose out on relationships. But I felt that if we had to move up in life, we would have to institutionalize and not remain individual investors. So that’s how we decided to convert the research firm into a portfolio management service (PMS) in 2009 . We got our PMS licence in 2010 and started managing client money.

You started out by working for Rakesh Jhunjhunwala. Did that make you very bullish and a big risk-taker?

Absolutely. The biggest takeaway from working with Rakesh was that when you see an opportunity and you see that the risk reward is in your favour, then you should not hold back. And that ability to bet big and hold on, is very difficult. It’s not like I have not paid my fees in the market. But if you start on a negative note, then you end up having a far more conservative approach generally in life.

Any interesting instances that you recount from the time spent working for Jhunjhunwala?

There are many. I’ll tell you one. We were all working (researching) for him and when he made any investment, he would come and ask us “doobenge toh nahi na?" (We won’t sink, no?) And you really didn’t know what to say because he was asking us if we had made a mistake. That was just his way of figuring out other people’s thoughts. One thing that I learnt under him was to not utter a word unless you were sure because he was a very, very hard taskmaster.

What’s your current asset mix?

I come from a school of thought that we cannot be invested in any other asset class other than equities. So, I have zero allocation to other assets. I do own a home and some land, some of which I inherited. But from an investment point of view, I am 100% into equities. Within equity, listed would be 80% and unlisted would be 20%, in terms of today’s value.

What are some of your largest private equity investments?

So, one of my earliest private equity investments was a company called Concord Biotech, where Rakesh Ji had also invested. I used to track pharma for him and I was involved in evaluating the company. I could see that the entrepreneur was really good with skills in a market that did not have too many players. The company is into fermentation-based APIs (active pharmaceutical ingredients). It’s a 16-year-old investment for me. Today, the company is close to doing an IPO. Second, is the National Stock Exchange (NSE), whose shares I bought in 2018. At that point of time, there were not too many opportunities in the listed market and this was the time when public sector banks were trying to clean up their books and whatever good assets that they had, they were selling off. It was very clear to me that NSE was being given away for a very, very cheap cost, but the banks really didn’t have a choice.

Where do you invest in the listed equity space?

We believe in having skin in the game. So, all my listed equity exposure is through VQ Platinum, the PMS for which I am the portfolio manager. So, my clients have the comfort that I’m also invested in the same scheme as them.

What’s your exposure to large, mid, and small cap stocks? Do you plan to change it?

We are market cap agnostic, however, the way our philosophy has been, we have ended up allocating more to mid-cap stocks, the definition of which has changed over time. This is how we look at it today—companies above 1 trillion are large caps, between 10,000 crore and 1 trillion are mid-caps and below 10,000 crore are small caps. So, 20% of my allocation would be to large-caps, 60% would be to mid-caps and 20% to small-caps.

It doesn’t matter how excited you are about a company, but if it is very small, then you cannot be allocating too much to it because there are some liquidity considerations. That’s why our allocation to small-caps remains below 20%. The area where you can take a large enough bet, and hope to earn more than 25% kind of return and still sleep peacefully at night is essentially the mid cap space.

Tell us about your first stock pick.

This was around 2002 when I joined Rakesh. I was researching two themes then. One was pharma, a sector that I was tracking. In 1995, India became signatory to the WTO, which basically meant that India had to abide by intellectual property rights. There was a window of 10 years during which we could still continue to reverse-engineer some of the drugs and sell them in the US. So, we saw that there was a huge opportunity for small companies in India to do this. The companies were all in the market cap range of 500 crore to a couple of 1,000 crore, while the market opportunity was in billions of dollars. So, CRAMS (contract research and manufacturing services) was the first theme I was bullish on. But at that time, I didn’t have much skill to identify the eventual winner so I made a basket of companies—Suven Pharmaceuticals, Sashun Pharmaceuticals, Matrix and Haikal—to invest in.

The second theme that I invested in was capex. The Indian government had announced a huge road infrastructure project, and we were on the cusp of a big capex cycle. Again, all these companies were available at less than 500 crore market capitalization, while the opportunity they faced was in thousands of crores. We invested in Elecon Engineering, Mc Nally Bharat Engineering Company, ESAB, and Mather and Platt Pumps. These were all trading at single-digit P/E (price to equity) multiples and their balance sheets were quite okay. They had a tremendous growth opportunity at that point.

What do you think have been the key drivers of your portfolio return?

I think what one needs is the right attitude and aptitude. You need to understand that the market is not a place where you come to make annual returns. One has to come with the attitude that you are creating wealth for yourself 10-20 years down the line, for your future generation. Then you have to stay allocated to equities to the extent possible and for as long as possible. And, stock selection does play a role, but that is probably secondary in terms of wealth creation. You might have picked the best stock but if you allocated only 1% of your entire net worth to it, then even if it turns out to be a 100-bagger, it’s going to have a much smaller impact.

But somebody like me who’s completely dedicated to equities market, can have 100% allocation to them. But if someone is depending on somebody else to do this, then they might not want to have such high allocation.

Any investment mistakes?

So, there’s a laundry list of mistakes. My favourite quote of Rakesh Ji is this – he used to tell us “make mistakes that are affordable. And don’t forget to learn from your mistakes." The biggest mistake is not to learn from your mistake. Let’s say I have made 10% equal allocation to 10 stocks and one of them goes to zero because I made a wrong stock choice. That’s fine. All I need is at least two three stocks to become large enough to compensate for that.

But it is the errors of omission that don’t show up in your balance sheet. What hurts me most is if there’s an opportunity that I bet on but did not bet on it large enough or did not hold on to it long enough. For example, Titan was clearly a company that Rakesh had a large allocation to. But at the same time, I did not have the same conviction that he had, nor the same level of allocation and neither did I hold on as long as he did.

Any stock picks that didn’t do well?

Oh, that list is long! I will name one because we actually made a loss in that company, a substantial one. This was Cafe Coffee Day. The company was hugely leveraged and there was a lot of leverage at the promoter level also. We were aware of all this but we thought that the underlying asset was very good, the intent of the promoter was to clean up the books and come out of the mess. But what we failed to gauge was the extent of the problem and he probably wasn’t mentally strong enough to get out of it. And we had to take a huge loss on it.

In terms of our investment philosophy, earlier, some of the winners that I bet on used to be the cheapest or the smallest companies in the sector. But I’ve realized over time that are usually transitionary wealth creators. So, we have changed our philosophy to buying only the leaders or the challengers in a particular sector, rather than going for the smallest or the cheapest company in the sector.

Is your spouse involved in the family’s personal finance decisions?

My spouse and I do discuss the overall strategy and where we are putting how much. She’s aware of what she owns and what she doesn’t. I do keep her in the loop but on a daily basis, she is not involved. She trusts my judgment on asset allocation.

Have you taken a holiday in recent times?

I was in Dubai last week for an Investment Summit. But prior to that, I went for the India Pakistan T20. Cricket World Cup. And that turned out to be a fantastic game. I’ve been to some other matches too. I’ve been lucky enough to witness MS Dhoni hit his last six in the 2011 World Cup that India won. I’m a sports traveller, especially a cricket traveller.

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