'No sector is entirely bad'

KNOW YOUR FUND MANAGER

Principal PNB Mutual Fund CIO Rajat Jain says the themes critical for India's growth are consumption, outsourcing and capital goods & infrastructure.

Principal PNB Mutual Fund CIO Rajat Jain is extremely bullish on India. "The long-term bull market for India remains in place. India has quality companies with high return ratios, good management and a big consumption story. So, the India story is intact," says Jain.

He firmly believes in three themes for India "� consumption, outsourcing and capital goods & infrastructure, as he says, "These are critical for the growth of India." Jain prefers bottom-up stock picking. He says, "There is no sector which is entirely bad as there are always good companies even in bad sectors." 
 

JAIN'S PERFORMANCE Scheme Performance (%) as on April 28, 2006
	Last 1 Year	Last 3 Years
Principal Balanced Fund	55.44	50.53
Crisil Balanced Index	48.62	33.84
Principal Equity Fund	80.66	56.33
S&P CNX Nifty	87.00	56.17
	Since Inception
Principal Large Cap Fund	50.80	-
S&P CNX Nifty	39.59	-

Jain selects a company based on three criteria. He prefers companies which have a strong franchise and firm control over pricing (are not price takers) and which incur least cost. Jain says the quality and the capability of the management are very important.

"The management should be able to execute whatever it says," he adds. Further, Jain checks the company valuations. "The stock should be available at a discount relative to the other companies in the same sector," he says.

Jain also eyes those companies that have enough growth. "We like to buy GARP (growth at right price)," he says.

But despite following this foolproof strategy to investing, Jain says, he has made many sins of omissions. "Sometimes you are so much focused on one particular parameter that you miss a good opportunity. Bharati Tele and Pantaloons are amongst my misses," he says.

"In case of Bharati Tele, I focused too much on its negative cash flows in spite of being aware of the fact that it had a strong management team, a good business model and the mobile market too was expanding. The negative cash flows were because the company was expanding: so it was incurring a lot of capital expenditure," he adds.

As for Pantaloons, he says, "We were not able to convince ourselves that the management would be able to execute and that the retail story was real."

On the other hand, Jain was also able to identify some stars. He proudly says, "In 1997, we bought Hero Honda at Rs 800 cum-bonus and before the split. Today, it is trading at around Rs 800 after the split and bonus. We bought this stock when the market was not buying." Another star performer that Jain was able to identify was Container Corporation of India.

"In 2000-01, we bought this stock at Rs 100 and now it is trading at around Rs 1,500. It has delivered returns about 15 times," says Jain. But he does not give the entire credit to himself.

He says, "Fund management is all about teamwork. I have a good team and all this is possible through the combined efforts of my team."

Jain firmly believes: "In investments, there is no alternative to doing the groundwork. It is extremely important to meet many people to learn more about the company."

He says, "Investment is not a profession of self glory. I never forget that I am managing somebody else's money and this helps you keep your feet on the ground."

This mechanical engineer, who is also an MBA from IIM Lucknow, started his career in 1989 when he joined SBI Mutual Fund as a management trainee. He was exposed to various departments in the initial two years. After that he was assisting a fund manager and then in 1996-97, he became the head of research.

Jain also worked as a trader for some time. In late 1997, he became a fund manager and then he had been the chief investment officer for the last fifteen months before he left SBI Mutual Fund.

At SBI, Jain individually managed two funds "� Magnum Equity Linked Scheme 91 and Magnum Multiplier Scheme. In June 2000, he joined Principal PNB Mutual Fund as the CIO. Jain says,

"The key challenge at Principal PNB was to reorient things the Principal way." Currently, he manages Principal Large Cap Fund, Principal Balanced Fund and Principal Equity Fund.

Jain is a fan of Indian history. In his spare time, he visits archaeological sites and reads a lot of books on Indian history. He says, "If you know Indian history well, it helps you understand the present India in a better way."

Jain also loves reading books written by Ruskin Bond. One book that he enjoyed reading was Future Shock by Alvin Tofler. Alvin Tofler is a futurologist.

"This book talks about changes that are to take place in the society in future and how these changes will dramatically affect the life of individuals," says Jain. "After reading this book there was a paradigm shift in my thinking. It opened my mind to a lot of new things." he adds.

Jain advises investors to avoid being part of the herd. "Don't invest because others are doing so. See whether the investment will work for you," he says.

Investors are worried about the current volatility in the market. Jain asks retail investors to stop worrying and think long term. "People have long-term horizons than they think they have. If you are to live, for say, sixty years, then what happens in the next six to twelve months does not matter," says Jain.

"So, people who can take a long-term view should not worry and should stay invested," he concludes.