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Focus on stock valuations, not future assessments of economy: Prashant Jain

Indian market is offering good value despite slight slowdown in the economy, says Jain.

ETMarkets.com|
Updated: Nov 22, 2019, 09.27 PM IST
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ETMGS 2019: HDFC AMC's Prashant Jain on his learnings from 25 years of fund management on Dalal street
ETMGS 2019: HDFC AMC's Prashant Jain on his learnings from 25 years of fund management on Dalal street
Mumbai: Star fund manager Prashant Jain, who earlier this year attained the rare feat of managing a single fund for 25 years, says that one cannot have a negative outlook on the stock market just because the GDP rate has fallen temporarily.

Growth rate may go down from 8 per cent to 5 per cent, but it may not remain there, said Jain, who is ED and CIO of HDFC MF. “Lower the interest rate, the higher is the fair value of equities. So, even as the economic growth is 3 percentage points less, the fair value of equities can be fairly high," Jain said at ETMarkets Global Summit in Mumbai.

In his long career, the fund manager said, future assessments of the economy, interest rates, inflation, currencies and commodity rates have mostly gone wrong. “What investors can control instead and what could help in forecasting the market better instead is the valuations at which the stock is bought,” he said.

To Jain, Indian markets are offering good value despite the slight slowdown in the economy, which he believes is temporary. Except for consumption-oriented stocks, all other sectors are trading significantly lower than their long-term averages, he noted.

Jain, who believes in value buying and not contra investing, said: "If value investing itself means you think different from others, then so be it."

The fund manager said he always tries to buy reasonable quality businesses because high quality businesses often are often available at high valuations. "I have always focused on what I pay. It is logical that when some businesses are doing extremely good and people are chasing them, there is value in the rest of the market."

He noted that in 1999-2000, IT companies were trading at such a high valuations that they were discounting years of growth in advance. “They were good businesses but a bad investment.”

Everything at that time became so cheap that it was hard to tell, Jain said. He noted that several consultancy firms at that point were expecting IT to become a $100 billion industry, which materialised, but only recently.

"BPCL was in 2000 at the value of LPG cylinder while Ashok Leyland was available at less than its working capital on a balance sheet," he noted.

On PSU stocks, Jain said that they were a misunderstood lot. “Some of mining, oil and gas, select banks and power sectors PSUs have sustained business models and seems to be trading below their intrinsic values,” he noted.

The fund manager highlighted that India and China had almost the same per capita in 90s. “But where India excelled services, China's manufacturing went decades ahead,” he said, adding that today the weight of manufacturing sector in Sensex was less than 10 per cent.

However, Jain felt that all was not lost, as the corporate tax cut came at an opportune time.

He also noted that NBFCs in the past pioneered new areas of credit, and thus were very successful, but banks have now taken some share back.

Talking about his journey on Dalal Street, Jain recalled that he had a civil job in hand when he decided to move to the equity market. When asked what would he advise to his kids today, Jain opted for a civil job over a financial institution.

He also said that white collar wage growth in India was degrowing significantly.

Jain is managing India’s largest equity-oriented fund HDFC Balanced Advantage Fund since February 1994. This scheme was earlier known as HDFC Prudence Fund.

Since its inception, the scheme has delivered a mind-blowing 18.9 per cent return, compounded annually. The fund’s size has swelled over the years to a mammoth Rs 44,110 crore, as of October 31.

The ED & CIO at HDFC Mutual Fund also manages Rs 18,507 crore HDFC Top 100 Fund and Rs 23,440 crore HDFC Equity Fund. These two funds have delivered 18-19 per cent return since 90s.

Jain rarely makes TV appearances. But he has a huge fan following, with some investors pick mutual funds, just because his name is attached to them.

In his 25 years of managing HDFC Balanced Advantage Fund, Jain managed to deliver an alpha of 9.54 per cent over the Sensex, which was second only to legendary Peter Lynch who managed Fidelity Magellan till 1977, generating an alpha of 10.92 per cent, ET reported earlier this year.

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