Has the ace come out of the woods?

HDFC Equity and HDFC Top 200, both run by Prashant Jain, collectively manage Rs 26,000 cr of investors' money and are again in the limelight

The recent outperformance of India’s top equity funds, HDFC Equity and HDFC Top 200, has again brought their manager, Prashant Jain, and his funds into the limelight.

For, these schemes have outperformed their benchmarks and also beaten the category averages in both the past one month and three-month periods.

For instance, HDFC Equity Fund, with an asset size of Rs 14,375 crore, gave a return of 10.26 per cent over three months against the 8.9 per cent return by its benchmark, the Nifty 500. In the past month, too, the return was 4.97 per cent against 3.55 per cent by the benchmark.

So, too, for the HDFC Top 200 Fund, with an asset size of Rs 11,717 crore. It has gained 10.7 per cent in three months and 4.46 per cent in the past one month. The BSE 200, the index against which the scheme is benchmarked, delivered 8.8 per cent and 3.3 per cent, respectively, in the same period.

The latest outperformance is in contrast to Jain’s performance over the past five years, when his schemes had returned less than their benchmarks. This phase was challenging for Jain, who also is the chief investment officer at HDFC Mutual Fund, the country’s leading fund house. Jain had to spent most of last year meeting investors and distributors to explain his investment philosophy and why they should stay invested.

It should be noted that despite the performance, Jain was steadfast with his key investment bets. Infosys, State Bank of India, ICICI Bank, Larsen & Toubro and HDFC Bank continued to remain his top favourites. Banking stocks, which went through rough weather in the first two months of the year, have been Jain's preferred bets. He has always maintained that if an economy has to do well, its banks must do well.

“The key to this business is not taking a lot of risk. Though at times I earn less, the key is never to do big mistakes. I do not need to target the highest returns every quarter. It is not possible to top the chart every year. I have to be very mindful of what risks I am taking because in the long run, someone who does not have a very bad period will be the winner,” says Jain.

Further, he classifies losses into two categories — permanent and temporary loss of capital. "If I believe that in a stock my losses are permanent, I will sell it. But, if it is temporary, I will hold on to it."

The collective assets under management of Jain's two schemes have lost a little over Rs 6,000 crore of its value, from as high as Rs 32,000 crore last year to about Rs 26,000 crore currently.

"I believe that, fundamentally, India is a growth economy. The worst on the economic front in India is clearly behind us. Inflation is steadily coming down and lower interest rates are thus a natural corollary over time," he explains. He adds that one or two quarters more of earnings will bring a lot of clarity.

According to him, given the likely recovery in the capital expenditure cycle, by the turn of the decade, India should emerge as not only one of the largest but among the fastest growing economies as well.

HDFC Equity Fund has given a compounded annual growth rate of 19.3 per cent since launch. Despite relatively poor performance in the past few years, it is the only one in the sector which beat its benchmark for 18 of its 21 years.

"Equities are a great compounding machine and India had and has great growth prospects. My advice to investors is very simple. Asset allocation is the key to successful investing. After asset allocation, all an investor needs is patience and discipline," says Jain.