 
Prashant
Jain ANOOP
BHASKER RITESH
JAIN |
Catching the wave Ram Prasad Sahu 31
year old Ritesh Jain is on the look-out for signs of trouble in
the markets. He goes in for the kill the moment he spots one. At a time when rising interest rates were interspersed with short rallies, predicting the road ahead would be like being in a dark alley and hoping for a fortuitous turn. From a 10-year yield of 6.68 per cent, the curve went up to 7.30, came down to 6.86 and hovered around 7 per cent for most of FY 2006. Not only did Ritesh Jain survive the unpredictable market conditions, he bettered the category and benchmark returns by a wide margin. Jain clocked returns of 6.5 per cent for Flexi Debt scheme, while category returns were at 3.88 per cent and benchmark Crisil Composite Bond Fund Index gave 3 per cent. He bags the best debt fund manager award for 2005-06 as the Flexi Debt Fund topped the chart in its category based on risk-adjusted returns. Jain holds a master’s degree in business economics and has been dabbling in debt and forex for nearly six years. He has been with Kotak Mutual since December 2002. The art of Flexi investing “Flexi Debt has been positioned as an investment vehicle that fits between a liquid and a short-term bond fund,” says Jain. While a liquid fund invests in instruments with a maturity of seven days to a year, a short-term bond fund would typically invest in funds with a maturity period ranging from six months to two years. “A liquid fund gives you higher returns than a fixed deposit, while short term bonds offer returns higher than liquid, albeit with a higher risk profile. A flexi approach combines the two to offer an attractive proposition to the investor,” he says. A large portion (75 per cent) of Flexi Debt Fund has been invested in CP/CDs and NCDs. “We have less than 2 per cent of our portfolio in marked-to-market instruments to avoid the uncertainty,” says Jain. On the performance of Flexi Debt Fund, Jain says the fund is not interested in finishing in the top quartile but wants to be the best on risk adjusted return basis. “The goal is to reduce risk while increasing returns,” says Jain. This he has done by investing in high-tenure instruments. Playing on the yield curve and instead of buying 1-3 month assets, where the yield is 6.75-7 per cent, he added assets in the 6-12 months bucket, where the yield was quiet steep and rates were close to 7.75-8 per cent. By going a little higher on the maturity profile, he was able to add 50 basis points returns to the portfolio over liquid funds. According to him, the spread between a government and a corporate bond should be 50- 75 basis points. Using this as the thumb rule, Jain chooses the relevant maturity bucket and corporate or government security. Jain believes in the maxim “early bird gets the worm” and follows it assiduously. Once he is convinced about the need to take a position, Jain doesn’t dither. He overlooks short-term signals to focus on the medium and long-term outlook. “I don’t want to be the last one leaving the room even if there is money on the table,” says Jain. He would rather get out before market players run amok than be left holding the basket. He gives the example of SBI certificates of deposit (CDs) which are among the most sought after instruments. Since the supply of the security is limited compared to instruments of other banks, mutual funds that hold the paper are reluctant to part with it. Jain understood the way market participants behave. He bought the stock in the secondary market at 7.6 per cent on July 31 this year when there was a fear about liquidity. The liquidity crunch did not materialise and then the market mood turned from fear to greed, so he sold the stock at 7.4 per cent on August 10. He bought it again when it hit 7.65 in early September to play out the cycle. “You always buy when there is fear in the market and sell when greed takes precedence over fear,” he adds. Giving another example he says that the fund has been able to time its maturities to coincide with the tightening liquidity so as to take advantage of higher yields. “There is liquidity tightness around advance tax payment date and we have assets maturing around those days so that we are able to take advantage of weak markets,” says Jain. Timing entry and exits, based on market events, helps Jain maximise his gains and limit losses. “My first objective is to avoid losses. Distancing yourself from what you do and looking at it objectively has helped me focus better,” he says. Before arriving at a decision he looks at how the domestic and global factors play out. Take a call and stick to it To avoid wrong calls, Jain does a thorough analysis and locates the problem area. “Trouble first brews at the periphery,” he says. He cites the example of Iceland Krona. Investors flocked to the country owing to high interest rates offered but fled when Fitch warned of a hard landing owing to excessive leveraging by Iceland’s banks. The fall of the Krona would go on to impact other countries such as New Zealand, South Africa, Turkey, Hungary and Poland. A risk management system, he believes, is a tool that protects you from going overboard. But despite the best analysis things can go wrong and they do. Jain says that there have been instances when he has gone wrong because the anticipated event did not happen or it occurred with a lag. But Jain has been patient. “If returns have to be sacrificed for a brief period in order to ensure low risk/ volatility we have gone ahead and done that,” says Jain. Jain believes that debt is now more of a trading market than a trending one. The yield curve will move sideways rather than sharply in either direction. A bookworm, Jain laps up information related to investments and uses his morning hours to smash the walls of his club. “Squash pushes your limits,” he says adding that it is back breaking and keeps you on your toes. He
has one more limit to cross. In the Standard Chartered Marathon,
he has so far covered seven kilometres but would like to tackle
21 this time around. “It not only keeps you fit but helps you
compete with yourself to strive for a higher goal,” says Jain.• HOME Business Standard • FUND MANAGER • October 2006 |