 
Sanjay
Dongre ANOOP
BHASKER RITESH
JAIN |
India's Lynch Prashant
Jain doesn't like to indulge in anything that is unsustainable Prashant Jain may not fancy the comparison, but as the top BS fund manager he can boast of a performance comparable to that of star American fund manager Peter Lynch. Being extremely risk-averse, the chief investment officer of HDFC Mutual likes to always weigh cost benefits of any given situation. But if stocks are all about taking risks, how does Jain manage to play and win? If Jain’s philosophy were to be defined in one word, it is sustainability. Momentary delights, read short-term rallies, are not for him. He would rather focus on getting the big picture right. Such is the obsession with sustainability, that Jain has spurned several juicy high-paying hedge fund jobs. No thumb rules or favourite metrics, every call is situational. For instance, 10 years back when the customs duty on steel was extra-ordinarily high, Jain decided to stay away from the sector for he could foresee that duties would keep coming down making it difficult for domestic players. Similarly, he is reluctant to buy into stocks which are driven by short-term demand-supply mismatches. Sugar stocks are a case in point. Jain has not bought a single sugar stock despite the spectacular run in these stocks over the past three years. His reason they are price-takers at both ends -- sugarcane cost is passthrough, while sugar companies have little control over the final sugar prices beyond what is driven by increase in the raw material. If at all he decides to buy such businessess, he would look at the replacement cost, in case of sugar pay for their crushing capacity, and not value them based on recent earnings. But doesn’t this opportunity loss hurt him? For Jain, the call to avoid or give it a shot defying one’s own view is driven by risk again. If the stock or sector in question has a large weight in indices and his contrarion call can hurt performance severely, he would much rather give it a shot to reduce the risk of underperformance. Jain’s biggest success thus far has been his call on technology in 1999. Jain sensed the fall six months in advance and wiped out tech from his portfolio. Though he underperformed the market briefly, it saved a pot of money for his unitholders. The reasoning even then was straightforward. While tech stocks were discounting 100 per cent growth year-after-year, those rates were not sustainable. Even if they were to be sustained, in about 10 years the sector would have constituted about 15-20 per cent GDP and that would have meant a strong appreciation in the value of the rupee which was the key source of their competitive advantage to begin with. In today’s market, he sees a chink in cement sector’s defence. With time and money one can create fresh capacities and all it requires to make cement is coal and limestone. These companies do not have any franchise value, so what does one pay for? “The market is valuing companies at roughly Rs 600 crore/million tonne while the replacement cost would be around Rs 300 crore/million tonne. What for?”, he asked a leading cement analyst recently. And
if Jain is not swayed by market temptations, attribute it to his
spiritual inclination. For a man, who controls assets worth Rs 7,344
crore, heading to the Himalayas would, probably, be his final call.
• HOME Business Standard • FUND MANAGER • October 2006 |
