HDFC Top 200
Prashant Jain sticks to his guns. He continues to have faith in the financial services sector, which has been the largest sector in his portfolio for a while now.
State Bank of India, or SBI, continues to feature among the top picks. The fund manager believes that public-sector banks 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.
Given his investment style, this is how we expect him to act.
In 2015, the fluctuating fortunes of public sector banks, particularly that of SBI following a rise in non-performing assets and poor results, have had an impact on the fund’s showing. But the fund made a promising comeback in 2016 and delivered a competitive performance 2017 as well.
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.
Over the past few years, the fund has courted more risk compared with a typical Morningstar Category peer. Although this is in line with the manager’s investment style, it would help if investors invest in it from a long-term perspective.
HDFC Equity
An unwavering focus on the long-term and willingness to back conviction bets are integral to Prashant Jain’s investment approach. Hence, he doesn’t shy away from trading near-term pain for long-term gains. This approach was on display in 2015 when Jain held on to his investments in public-sector banks (particularly SBI) despite it running into rough weather, and the fund languishing in the bottom performance quartile. This was not surprising as the manager has long favoured public-sector banks in his portfolios as he believes that they will be major beneficiaries of India’s long-term structural growth.
Notwithstanding short-term blips, Jain has demonstrated considerable skill in navigating the fund through varying market conditions over the years. Expectedly, he made a promising comeback in 2016 as his conviction in public-sector banks paid off well, helping it to record top-quartile performance for the year. Pleasingly, the fund’s good run under Jain’s able stewardship continued in 2017 as well.
Jain effortlessly combining top-down and bottom-up analysis (with more emphasis on the latter). While constructing the portfolio, Jain is mindful of the benchmark index weights, but is not benchmark-aligned. His willingness to be disciplined and adhere to his investment style even when it is out of favour is noteworthy.
Yet, we believe the process will hold long-term investors in good stead.
Things to note
- Research is central to the investment style as Jain scouts for reasonably priced quality companies with strong balance sheets and business models.
- He pays heed to valuations while picking stocks, freely combining relative and absolute valuation methods.
- The valuation consciousness coupled with aversion to speculative fare may cause the fund to lag peers in momentum-driven markets.
- In a downturn, Jain’s policy of staying fully invested could lead to underperformance versus peers that get their cash calls right.
- A supremely skilled fund manager backed by a strong team, a robust investment approach, and one of the best asset managers in the industry add up to best-in-class offerings.
- We believe that Jain’s investment process will hold long-term investors in good stead.
