Investing Like Rakesh Jhunjhunwala: A Stock Screen Based on His Philosophy

Rakesh Jhunjhunwala, often called the "Big Bull" of the Indian stock market, was known for his ability to identify multi-bagger stocks early and hold onto them for long-term wealth creation. His investment approach blended deep conviction, strong fundamentals, and an understanding of business cycles. While his method was primarily qualitative, we can try to convert his philosophy into quantifiable screening rules to build a stock screen inspired by his strategy.

In this blog, we’ll break down his key investment principles, define a set of screening rules based on his approach, and test the screen using backtesting on sharpely.

Rakesh Jhunjhunwala’s Investment Philosophy

Jhunjhunwala’s investment philosophy revolved around a few core principles:

1. Strong Business Fundamentals – He preferred companies with robust financials, strong balance sheets, and sustainable business models.
2. Scalability and Growth – He looked for businesses with the potential to grow revenues and profits significantly over time.
3. High Return on Capital Employed (ROCE) and Return on Equity (ROE) – He focused on companies that effectively reinvest their profits and generate high returns.
4. Management Quality and Moat – He valued competent leadership and companies with competitive advantages.
5. Reasonable Valuation – He believed in buying quality companies at a fair price rather than chasing low-value stocks.
6. Long-Term Holding – He had a high conviction in his stocks and often held them for years, allowing compounding to work in his favour.

Based on these principles, we designed a quantitative stock screen that aligns with Jhunjhunwala’s investment strategy.

Quantifiable Screening Rules

Using these principles, we have identified seven screening rules:

1. Market Cap > ₹5,000 Cr – Focus on mid and large-cap companies with established business models.
2. Revenue Growth > 10% (5-Year CAGR) – Ensures the company is expanding at a healthy rate.
3. ROCE > 15% and ROE > 15% – Companies generating high returns on capital deployed.
4. Debt-to-Equity Ratio < 0.5 – Prefer companies with lower leverage to reduce financial risk.
5. Operating Profit Margin > 15% – Indicates strong pricing power and profitability.
6. Promoter Holding > 50% – Shows management’s strong confidence in the company’s future.
7. P/E < Industry Average – Ensures the stock is not overly expensive relative to its peers.

Backtesting the Stock Screen on sharpely

To assess the performance of this stock screen, we conducted a backtest using sharpely’s backtesting tool. The test was run over the past 3 years, rebalancing every quarter to ensure the screen remains updated with changing market conditions.

Backtest Results

• CAGR (Compounded Annual Growth Rate): 25.96%
• Max Drawdown: -18.59% (Lower than benchmark NIFTY 50’s drawdown of -22%)
• Win Ratio: 77% (More than two-thirds of the stocks picked generated positive returns)
• Outperformance vs. NIFTY 50 (Alpha): +13.64%

Key Takeaways from Backtest

• Quality Wins Over Time: The screen consistently identified fundamentally strong businesses that performed well over a 3-year period.
• Lower Drawdowns: The emphasis on low debt and strong profitability helped cushion losses during market downturns.
• Long-Term Holding Is Key: The best-performing stocks needed time to deliver superior returns, reinforcing Jhunjhunwala’s philosophy of patience and conviction.

How You Can Use This Screen on sharpely

There are two ways you can work with this screen on sharpely.

1) You can replicate and refine this stock screen using sharpely’s stock screener. Simply apply the mentioned filters, test different variations, and backtest them to refine your investment strategy.

2) We have published this screen in our community screen section. So, you can clone this screen on sharpely and tweak these filters for your personalized strategy.

Conclusion

While Rakesh Jhunjhunwala’s investment genius cannot be fully replicated, his principles can be systematically applied to create a structured approach to stock selection. By using a quantifiable screening method and backtesting it, investors can validate their strategies and make informed decisions.

Want to test and refine this screen? Head to sharpely's community screens and start screening stocks based on time-tested investment philosophies!