Who is "Madhusudan Kela" ?
I prefer to call him “The Pharma Bull”.
"Madhusudan Kela" is an Indian businessman and investor. He was chief investment strategist at Reliance Capital until 2017.
During this tenure, Reliance Mutual Fund`s assets grew from nearly Rs 200 crore in 2002 to more than Rs 1 Lakh crore in 2011. Under his leadership, Reliance Mutual Fund received many awards and was rated the most trusted Mutual Fund House for three consecutive years by The Economic Times.
On a warm Delhi evening in 2006, star fund manager Madhusudan Kela and his trusted lieutenant Sunil Singhania were at a dinner with the promoter of food processing company REI Agro.
The firebrand duo from Reliance Mutual Fund was considering an investment in the up and coming firm. The company had also arranged their visit to the factory the following morning.
But as the dinner progressed and the chat kept coming back to REI Agro’s future plans, Kela became more and more excited. He asked the promoter if they could visit the plant immediately after dinner instead of the next day. Taken aback, the entrepreneur nevertheless said yes. So it was around midnight that Reliance Mutual Fund decided to make one of its most daring bets.
Passionate. Impatient. Instinctive. Crafty. These are some of the adjectives that the mutual fund industry knows Madhu Kela by.
He is the man who built the equity funds of Reliance MF from Rs. 13 crore in 2001 to a record-breaking Rs. 40,000 crore in 2010, helping the fund house become India’s largest in the process.
For awestruck rivals and happy investors, he was the Enduring Atlas, the titan who held up the heavens for all. A man who had the nose for multibaggers much before anybody else did.
Like the time when he had a chat with a Kingfisher airhostess on a flight from Delhi to Mumbai. That led him to do more research on the sector and he decided to invest in SpiceJet. Or when he took a close look at Adani Enterprises in 2006 when it was just a trading firm and bet on its future. Or even the investment he made in Jindal Steel & Power in 2003 and saw its market capitalisation zoom by 40 times within six years.
Over time, Madhu Kela became the embodiment of smart stock picking and hundreds of thousands of investors trusted him with their money. He became the icon of ‘Bottoms-up’ investing, picking scalable long-term opportunities with the help of rigorous balance sheet scrutiny and intense research of corporate plans.
In an extremely silent move, Kela moved out of the mutual fund to Reliance Capital as chief investment strategist. It took a while for outsiders to notice this change, but when they did, speculation flew thick and fast.
It came at a time when the Anil Ambani group, which owns the mutual fund, was negotiating a settlement with the market regulator over charges of misusing funds raised abroad. It also came at a time when its flagship equity fund, the midcap-focussed Reliance Growth, had begun to underperform the stock market.
“I have always looked at a company’s individual financial parameters and never really bothered about what is happening in the outside world,” Kela recalls in an interview with Forbes India. “But the 2008 crisis affected our portfolios and that is the time we decided to concentrate on the macro factors.”
A Salesman Par Excellence
Kela was instrumental in setting up the institutional desk at brokerage Motilal Oswal in the Nineties. “Madhu Kela managed to earn himself a reputation as a sales person because he used to put himself in the shoes of the fund managers and work closely with the research team,” says Ramdeo Agarwal, director and co-founder of Motilal.
His success at Reliance largely comes from the team he built in the early 2000′s. With a ten-minute talk, he convinced Sunil Singhania, then of Advani Share Brokers, to join him. They often hunted in a pair, mainly through the vehicle of Reliance Growth.
The Kela-Singhania team hit another home run when it invested in liquor company Radico Khaitan at a time when the business was a loss-making proposition and investors typically avoided the sector. They made 15 rupees for every rupee they put in. Similarly, with Pantaloon, they earned five times their investment.
Almost at once, Kela and Singhania went in for introspection. Even much before the crisis, they had pushed Reliance Growth to invest in large cap stocks (up to 30 percent of funds) because its growing size needed the cushion. But now, they started taking a complete relook at the way they invested. Maybe, they realised, just a rigorous look at cash flows, margins and P/E was not enough because something that happens in some corner of the world could destroy the fund’s net asset value overnight.
There was another problem. About a fifth of Reliance Growth’s Rs. 8,000 crore assets was parked in small companies. The fund had invested less than 1 percent of its assets in each of these companies and was not required to detail them in its portfolio declarations.
In the early 2000’s, Mr. Madhusudhan Kela made big investments into the “Pharmaceutical stocks” because he realized that due to massive population around the world there will be “No shortage of demand for the medicines”.
Other factor was the fact that typically the companies were selling the medicines at around ten times the cost of manufacturing, all that meant higher net profit for the pharma companies and growing earnings.
The logic was on spot and the market rewarded his thesis quite handsomely because the stock prices went 100x provided that one kept holding the stocks.
Mr. Madhusudan Kela had his upbringing in a small town in Chattisgarh, India.
What made him attracted towards the “Stock market” was that while he was hanging out with his friends they talked about how they made a “X” Amount of money while they were traveling together.
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