Lessons from Dolly Khanna’s portfolio building

Dolly Khanna is not your average investor, but she has managed to become a multi-millionaire literally without even lifting a finger.

No, we are not leading you down any random rabbit hole. Mrs. Khanna is a senior citizen home maker, whose portfolio is managed by her IIT Madras educated businessman husband Rajiv Khanna. Mr. Khanna, who began investing in the stock markets only in his 50s, has managed to get multibagger returns of the sort that some of the most established investors can only dream of.

The Khannas owned the famous ice cream brand Kwality Milk Foods, which they sold to Hindustan Unilever in 1995. It was only around 1996-97 that the now 77-year-old Mr. Khanna entered the market, albeit not directly but via his wife’s brokerage account.

To be sure, the Chennai-based Punjabi husband and wife remain low-key and rarely do they talk openly about their investment thesis. But if we look at the publicly available information on their stock market portfolio, there’s enough that we can glean from it.

How much are the Khannas worth?

The Khannas prefer buying shares in stocks that are not that popular, but ones that typically go on to perform very well in the markets.

Over the last few years though, they seem to have reduced their exposure to the direct stock market and seem to have moved their money either into mutual funds or other asset classes.

Public data shows that as of the end of September 2024, Dolly Khanna owns stakes of 1% or higher in 17 stocks, with a cumulative market value of more than Rs. 505 crore. But this does not include those counters in which she holds less than 1%, so the actual value of her stock holdings could be much higher.

Market sources, in fact, put the value of the Khannas’ total corpus at a much higher Rs. 1000 crore or even more.

But the value of their corpus is hardly the point. What matters is, how they got here.

The Dolly (Rajiv) Khanna school of investing

One of Rajiv Khanna’s first successes was real estate company Unitech Ltd in which he invested Rs. 5 lakh in 2003 and harvested Rs 25 crore from the share, in a matter of just around four years.

The Khannas seem to have a simple investment philosophy. They want to capture growth opportunities in the small and midcap segments.

They have managed to make big money on small caps like Nilkamal, Rain Industries, Avanti Feeds, Pondy Oxides, Monte Carlo, Simran Farms, Deepak Spinners, Control Print, Som Distilleries, Talbros Auto, Prakash Pipes and Nitin Spinners, just to name some.

Some of the other small caps that they have been invested in, include Asahi Songwon, Butterfly Gandhimathi, J Kumar infraprojects, Polyplex Corp, Shemaroo, Sharda Cropchem, Goa Carbons, Sharda Cropchem, Zuari Industries, Rama Phosphates, Indo Tech, Ajanta Soya and Aries Agro.

The Khanna portfolio shows that not only are they looking for undervaluation but also for companies that can grow their sales and profits quickly. They are typically eyeing a 15% of higher topline and bottomline growth, along with robust future growth prospects.

But this is not all. What is perhaps even more important is the type of companies the Khannas prefer investing in. They typically do not invest in banks and financial services, technology or government owned companies. Instead, they focus on textiles, chemicals, rubber, automotive and manufacturing companies in their portfolio. They seem to give a higher priority to companies that deal in products and services that they can see being used around them.

For instance, Mr. Khanna, invested in Unitech when he was looking around to buy a house in the Delhi-NCR region. He invested in a company called Manjushree Technopack when he was on the lookout for a bottle manufacturer for his food business. He stumbled upon Hawkins since the company’s cookers were used at home and he bought into Femcare when he saw his daughter use their cosmetic products.

As journalist Shankar Nath noted in a YouTube vlog last year, the Khannas’ preference for such B2C companies comes from the fact that he himself owned an FMCG business and has had a knack for finding good quality businesses in similar customer-oriented segments.

The Khannas know when to get out of a stock

What often defines a good investor is such people know when to exit an investment and cash out at the right time. The Khannas have done this several times including when they sold their holdings in the IT segment before the dot com bubble burst in 2000 and exiting Unitech before it went bust in the wake of the global financial crisis of 2008.

The Khannas have in fact parted ways with stocks that had a high allocation in their portfolios when they began underperforming. Examples include Rain Industries, Manappuram Finance and Gujarat Narmada Valley Fertilisers and Chemicals.

But they also have made some mistakes like exiting many of their positions in the wake of the lockdown of 2020 following the Covid pandemic.

Another important aspect of their investment process is that the Khannas use public data to make their decisions on big-ticket bets. Journalists like Nath say that the Khannas are reticent and rarely meet the managements of the companies they want to invest in or analysts tracking them. They also do not seem to conduct any scuttlebutt investigations or for that matter get into complex calculations. Although since they are so reticent, we can never be sure about this. 
Rajiv Khanna does however track charting strategies like the 30-day moving averages to track stock prices and exits his positions if the stock goes below his 30 DMA. He uses this as a filter of sorts to predict a calamity as far as the stock goes, exit it, and re-enter the position when the event has passed.

This also means that he does not steadfastly hold on to the maxim of buy and hold for good.

So, should you clone Dolly Khanna’s investment style and gain HNI status?

The honest truth is we cannot recommend either way. While the strategy of backing mid and small caps and generating multibagger returns from them has worked for the Khannas and at least three dozen other well-known investors, do remember that this is a risky strategy and that returns can often be middling or even negative for long stretches of time, depending on how well the small and midcap universe is doing.

But what you can do is learn how they strategise and adapt similar techniques to suit your risk profile.

Here is what their investing style tells us:

1. The Khannas focus on finding multibagger opportunities rather than just investing in index stocks or diversified mutual funds or index funds. 
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2. The Khannas find multibagger opportunities in the small and microcap space which is why their portfolio is focused on these counters
3. They do however tend to diversify their portfolio across sectors and industriesÂ
4. They invest using indepth research and fundamental analysis with an emphasis on growth and profitability
5. They tend to target a sales growth of 15%, profit growth of 20% and an ROCE of 15% and buy companies with a high promoter shareholding of 50% or more. They also look at an interest coverage ratio which is comfortable at less than 4 and a price to sales ratio of less than 1.Â
6. They also seem to regularly review and adjust their portfolio and improve upon their investment framework.  Â