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Amit Goela, Partner at Rare Enterprises, who worked closely with Jhunjhunwala, described him as a master of this strategy, consistently identifying such opportunities and generating substantial wealth.
“I’ve seen him consistently over a period of time pick stocks or companies like this which were in trouble and he’s made serious money in them although he never coined them as a bruised blue chip,” Goela said in a chat with CNBC-TV18.
Raamdeo Agrawal defines blue chips as the companies which earn at least 20% average return on equity for 10 years along with size, stability, and leadership. Bruised blue chips are companies that have declined more than 50% from their highs but retain core strengths, such as strong returns on equity, size, and market leadership.
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Agrawal attributes their underperformance to factors such as market events, external influences, poor capital allocation, competitive shifts, or regulatory changes.
However, Agrawal has not actively pursued the strategy himself.
Jhunjhunwala’s approach, on the other hand, was rooted in a fundamental principle: avoiding capital loss at all costs.
Despite using leverage, he ensured that debt was serviced through dividends or trading income, eliminating the risk of losing his principal.
“There was no question of a capital loss,” Goela noted, adding that Jhunjhunwala’s edge was his ability to stay invested for the long term without the pressure of beating a benchmark.
Also Read: How ‘bruised blue chips’ can boost wealth creation
Jhunjhunwala focused on key metrics like price-to-earnings (PE) ratio and market capitalisation relative to opportunity size.
Dividends were less of a priority, as most of these companies were in poor financial shape.
His sector-agnostic approach also played a significant role, with investments spread across industries, demonstrating his open-mindedness in seeking value.
