 "When size becomes a constraint")
However, Jain is not perturbed, partly because criticisms at various junctures have been a part of his two-decade-old career in fund management. "We may or may not do well at times, but one thing we have done successfully is that we have not lost serious money," says Jain, 45, in an interview at his Churchgate office in South Mumbai. The logic behind this comment may find its origins in the investment philosophy of Warren Buffett, one of the world's most admired value investors, whom Jain looks up to. Jain is a firm believer of Buffett's two rules for investing: 1. Never lose money. 2. Never forget rule No. 1.
Many in the market say one reason for the underperformance of the two schemes in the past one year is their fund size. The two schemes have the largest asset under management (AUM) in the domestic mutual fund industry with corpuses of about Rs 10,000 crore, each hindering the fund's capability to churn higher returns.
But Jain rebuts this criticism as well. "You have to look at the size of the funds in the context of the market in which we are dealing. Today, India's market cap is around $1.5 trillion ($1,500 billion). Of it, total equity mutual funds are $40 billion - around 2.5 per cent," he says. Had equity assets been a very large part of the market cap, the performance may come under question, says Jain. Both schemes put together constitute 23 per cent of HDFC Mutual's total AUM of Rs 1,01,700 crore, the largest in the 44-member strong Indian mutual fund sector, which has assets worth Rs 8.16 lakh crore.
What could have also affected the performance of the two schemes during the year is the sizeable exposure to some of the laggards. For instance, State Bank of India and Infosys, which have been underperformers, are among the top holdings in funds managed by Jain.
Fund analysts say it is the conviction in his views on stocks and sectors-even those shunned by the market- that result in fund performances dipping during a one-year period. Also, his resolve to stay away from bubbles has resulted in his schemes underperforming in the near term. For instance, Jain stayed away from Dalal Street bubbles in the real estate and infrastructure sectors during 2007-2008, while selling off early in consumer goods, a sector which has seen, in the past two years, one of its best runs ever.
"Though Prashant's investments are backed by deep research, sound logic and his great conviction, his schemes have taken a hit for some time now as some of his bets have not delivered," says Dhirendra Kumar, chief executive of Delhi-based fund tracking firm Value Research. "He is also fighting a constraint as size of his funds has become large."
Notwithstanding the one-year underperformance, what sets Jain apart is the fact that his funds have fetched superior returns in five-year periods. The funds have generate 12-14 per cent annualised returns in the past five years, compared to the industry's category average returns of eight-nine per cent.
According to fund analysts and distributors, the long-term performance is one reason why investors continue to flock to the schemes managed by Jain even as the sector is seeing redemptions and folio closures.
Jain likens a fund manager's performance to a batsman in cricket. "One year is like one match for us. What's important is the batting average. One must always look at the future because today's price is your cost. It does not matter whether I have purchased a stock at Rs 200 or Rs 4,000. If I like a company today, it does not mean the market will like it today. Even if I am right, market may take two-three years to realise it," says Jain, an engineer from IIT Kanpur and a management graduate from IIM Bangalore.
Jain, who partly agrees he became a fund manager by accident, joined SBI Caps from the IIM Campus and was shifted to its mutual fund division. In 1994, he moved to 20th Century Mutual Fund, later bought by Zurich Mutual Fund. HDFC later bought out Zurich.
Jain's optimism about India's prospects prompted him to stay back in the country, even as his college mates left the country in search of greener pastures "India has a lot of natural resources (except oil), smart people and a large market. These three factors make us a promising growth economy which is globally competitive," he says.
Analysts at brokerages and investor relations executives at companies consider Jain as a 'hard-to-please' fund manager, with strong views. Says the head of institutional sales at a leading brokerage: "Reaching him is a Herculean task. Even if we manage to reach him after his initial checks, nobody has any clue that he would buy the idea."
Jain has his reasons for trusting his own research and logic to zero in on his investments, rather than just depend on company visits or analyst recommendations. "I have seen, sometimes, meeting companies is not of great help. The management, themselves, in many cases are dealing with uncertainties and they are not in a great position to forecast the future. Many-a-times, they also have biases," says Jain.
" It's human nature to extrapolate the present into the future. In good times, companies say growth will continue. If you meet an automobile company when the cycle is bad, what do you expect to hear? Only a few companies or individuals are able to be dispassionate, take an objective view, move away from the present and have a more balanced view of the future." Jain believes one needs to be dispassionate in his own investment decisions. "If one believes there has been a mistake and loss is permanent, one should sell (the stock)."