Manager Prashant Jain is sticking to his guns. He continues to have faith in the financial services sector, particularly in State Bank of India. In 2015, the public sector bank’s fluctuating fortunes (following a rise in nonperforming assets and poor results) had an impact on the fund’s showing. However, it performed well in 2016 and the fund made a promising comeback.
The bank continues to feature as Jain's top pick and we aren’t surprised. He has long favoured public-sector banks in his portfolios, believing that they will be major beneficiaries of India’s long-term structural growth. His conviction in SBI stems from confidence in its core operations, ability to raise inexpensive monies, and attractive valuations. Indeed, given his investment style, this is how we expect him to act.
Research is central to the investment style, with Jain effortlessly combining top-down and bottom-up analysis (with more emphasis on the latter) to identify companies with strong balance sheets and business models. He pays heed to valuations while picking stocks, freely combining relative and absolute valuation methods. Despite largely investing in S&P BSE 200 stocks, he has shown immense flair with portfolio positioning. His in-depth research has given him the confidence to take meaningful variances from index weights at both stock and sector levels. It is noteworthy that over the years, Jain has demonstrated considerable skill in navigating the fund across market conditions and delivered pleasing long-term results.
Admittedly, the process has its biases. The valuation consciousness coupled with aversion to speculative fare may cause the fund to lag peers in momentum-driven markets. Further, in a downturn, Jain’s policy of staying fully invested could lead to underperformance versus peers that get their cash calls right. Yet, we believe the process will hold long-term investors in good stead.
Our reasons for liking the fund--a supremely skilled manager, a robust process, and one of the best asset managers--remain intact. We reiterate our Morningstar Analyst Rating of Gold.