Saurabh Mukherjea - Gurus of Chaos: Modern Indias Money Masters

Gurus of Chaos

MODERN INDIAS MONEY MASTERS

Gurus of Chaos

Modern Indias Money Masters

Saurabh Mukherjea

Copyright 2014 Saurabh Mukherjea

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To the home team:
Sarbani, Jeet and Malini

Contents

Foreword

The Indian stock market is many things to many people. Some are drawn to its thrill and promise but more often than not, people fail to understand the risk that runs beside the reward of a great ride. For many, the markets and its workings seem to defy logic and mastery. Whilst all participants in the stock markets seek disproportionate outperformance, uncovering what it takes to be successful in the stock markets is something only a handful of individuals have managed to do.

Six years ago, Saurabh Mukherjea moved to India from the UK after selling the highly rated London-based Institutional Equities research franchise that he had co-founded in his mid-20s. Those were the days when the Indian stock market lacked high quality research other than research prepared by a few select brokers. I got Saurabh on board to help me build Ambits equities franchise. Today our Institutional Equities business is one of the most respected in the industry with its franchise built around its focus on high quality, high integrity research.

Saurabhs almost obsessive focus on ensuring high quality research has motivated him to write this book. Using the clarity of thought that has become his hallmark, he provides the reader with a clear view on what the drivers behind successful investing are. With over a decade of experience in the stock markets both in India and the UK, Saurabh brings together in this book, not only his learnings, but also the collective wisdom of a small group of Indias elite investors. Each of these highly successful long term investors has built for himself a fine set of navigation tools and developed a unique perspective and approach towards the market. The book carries detailed interviews with these investors where they speak freely about their passions, dreams, fears and shortcomings. For the reader this offers a fascinating insight into a world that seemingly operates in mysterious ways.

The book is based on in-depth research using rigorous analytical and forensic accounting techniques, which has now become the guiding principle for every business in Ambit. Saurabh highlights how easy it is to overlook glaring faults in companies performance and how these can be easily spotted using basic number crunching tools. He also delves deeper into a series of smartly crafted techniques that can be used to uncover serious accounting issues or corporate governance issues that companies might be trying to cover up.

While technical knowledge of the latest research techniques is necessary, it is not a sufficient condition of success in the stock market. Such knowledge has to be combined with a strong work ethic, strength of character, humility andmost importantlythe ability to think differently from others. Focusing in particular on this last aspect, the book highlights how strength of character combined with in-depth knowledge is the foundation of differentiated thinking which in turn helps deliver outstanding long term investment returns. Ironically, those individuals who possess this combination of character strengths are rarely driven by money or greed; their interests in life tend to extend well beyond the stock market and that in turn allows them to invest dispassionately and successfully.

Gurus of Chaos is therefore a rare glimpse into the unique minds of elite investors who have consistently delivered, despite the trying conditions of the Indian stock market. I would recommend the book not just to investors but to everyone who is trying to succeed in the increasingly vibrant free market economy that India is gradually becoming. Patience, humility, fortitude and contrarian thinkingthese seemingly old fashioned values matter in and outside the stock market and all of us can draw inspiration from the investment gurus who have demonstrated these strengths over the last twenty years. I hope you derive as much value from and as much enjoyment from Gurus of Chaos as I did.

Ashok Wadhwa
Group CEO, Ambit Holdings
Mumbai, October 2014

PROLOGUE

The High Noon of Indian
Capitalism

The smog refused to lift even as the ancient Ambassador taxi wheezed its way through the empty streets of Kolkata. It was a chilly January morning and with our five-month-old son, my wife and I were heading to the airport to fly back to London having attended a family function at my ancestral home. The year was 2008.

As we watched the first few office workers get on to buses and trams, the taxi driver asked me in Hindi, Reliance Powersir kya lagta? Company kaisa hai? [What do you think of Reliance Power?]. When I replied that since I didnt live in India, I did not know about Reliance Power, the driver realised that he could help me out. Riks kam hai, security zyada hai said the driver [The risk associated with the company is low. It looks like a secure company.] I chided myself for not having realised that the taxi driver was asking me about Reliance Powers Initial Public Offering (IPO), the largest ever in India, wherein the company was planning to issue to the public shares with a value in excess of ` 100 billion.

By now, in spite of the wintry fog and my sons demands for attention, I was intrigued. I was after all in Kolkata, the capital of a state ruled by a Communist government for nearly 30 years, a city known for its intellectuals and its food but not renowned for its risk appetite. And yet almost every second person I had met in the preceding week was discussing the IPO. The evening before, at the dinner table I heard elderly relativeslawyers, architects, accountants, executivesdiscussing amongst themselves how many shares of Reliance Power they might be able to get at the upcoming IPO. My Bengali relatives had never before shown such enthusiasm either for the stock market or for free market enterprise. I was pleasantly surprised but also taken aback by the winds of change sweeping this bastion of Left-wing thought.