 "Prashant Jain")
This is the fourth time in 14 years that Prashant Jain has been chosen the Business Standard Fund Manager of the Year - Equities. He was the second recipient of the award in 2002 (the award started in 2001) and then followed it up in two consecutive years - 2011 and 2012. The Jury has conferred the award on him again, after a year's gap.
Jain, 46, one of the few fund managers to have witnessed several market cycles in the last two decades, has had his fair share of critical remarks for the underperformance of his funds in the last few years as some of his stock picks did not perform as anticipated. However, the Chief Investment Officer (CIO) of HDFC Mutual Fund has made a strong comeback and proved his critics wrong who had viewed the sheer big size of his funds as the primary cause of underperformance.
Jain dismisses the argument that size is a constraint. "All mutual fund schemes are tiny in India. In fact, HDFC Equity Fund, with over Rs 16,000 crore AUM is only 0.17 per cent of the total market capitalisation. Size is not and cannot be a constraint," Jain says.
Also, he says, the percentage of assets under management (AUM) outperforming their benchmarks is significantly higher than the percentage of schemes doing so. This implies that larger schemes have done better compared to smaller schemes.
What though is crucial, according to him, is to maintain the funds' track-record of good long-term returns, and avoid pressures to perform in the short-term.
His indifference to outside noises and unshakeable conviction in his stock picks helped him turn the tide. For instance, his top pick State Bank of India (SBI), which at one time was almost nine per cent of the total portfolio size, had fallen to as low as Rs 1,475 last year. But that did not perturb Jain. Today, SBI is trading nearly 70 per cent above those levels.
He adds, "In fact, one of the reasons for our superior long-term track record is that while we have missed several good opportunities, we have not made too many mistakes".
Almost all his top holdings (about half of the AUMs) have done quite well. However, some picks which did better for Jain include SBI, Infosys, Maruti, ICICI Bank and Aurobindo Pharma. Aurbindo, which did not figure in Jain's top 10 holdings till a year ago, is the seventh largest holding in HDFC Equity and ninth in HDFC Top 200 Fund. Jain, however, has cut exposure in ITC, which was in top 10 picks in June 2013.
India's largest equity scheme, HDFC Equity Fund, with an AUM of Rs 12,886 crore, has given a return of 57.5 per cent for the 12 months ended June 2014 versus benchmark's 36 per cent and the category average of 41.5 per cent. HDFC Top 200, another fund actively managed by Jain, returned 48.7 per cent beating the benchmark by an excess of 15 per cent during this period. While the average category return stood at 32 per cent.
Going forward, Jain is quite optimistic and says that there is a clear improvement in fundamentals, both globally and locally. According to him, the panic and pessimism of 2012 has since been replaced by rising confidence and optimism for the future.
"The worst on the economic front in India is clearly behind us - GDP growth is improving, current account deficit has narrowed sharply, fiscal deficit is slowly but surely moderating, inflation is steadily coming down with visible moderation in key constituents. Lower interest rates are thus a natural corollary over time," adds Jain.
He believes that with likely recovery in the capex cycle over the next few years, India's growth rate should exceed China's making India the fastest growing economy.
At a time when there is some caution as well on valuations of Indian stocks, Jain says that it is neither expensive nor cheap. He foresees corporate earnings to be better than estimates as margins are significantly below long-term averages and should improve led by better capacity utilisation and business conditions. "Thus, there is room for multiples to expand," he stresses, adding that markets are up only 30 per cent from the pre-Lehman levels and have sharply under-performed nominal GDP growth during these six years, in spite of the sharp up-move in recent months.
