Prashant Jain, head of investment, Zurich India Asset Management Company talks about his favourite stocks, Pidilite and Macmillan. Jain has been the fund manager of Zurich India Prudence since its launch in 1994. A balanced fund, Prudence has been one of the better performers among its peers with a focussed strategy and diversified equity holdings. Thus, despite the meltdown, the fund still boasts of a 3-year return of 20%.
His favourite stock
This is a difficult one. I have a number of favourite stocks - Pidilite, Macmillan etc. I like these stocks because these businesses have good solid management with a proven track record, the environment supports reasonable growth for long period of time and finally these businesses enjoy good pricing power. For instance, schools prescribe Macmillan in textbooks and parents pay. For Pidilite, Fevicol is a very strong brand and second, the cost of adhesive in furniture is miniscule. Hence, one is encouraged not to save money on adhesive and go for the best. Last, the growth in both is not capital intensive.
On future bluechips in the portfolio
For a mid cap company to become large cap, the company must grow to a matching size. Though there are a number of companies, which can become large cap over a period of time, this will take a long time, as the growth rates in these businesses are steady and not very high. One company, which has some prospects of faster growth, is Bharat Forge.
Bharat Forge enjoys a clear edge due to three factors - One is the cost of raw material and I think India is clearly emerging as a very competitive manufacturing site for steel. We have both the important raw materials, iron ore and coal, as well as fairly efficient plants. Two, Forging is a reasonably manpower intensive job and tough working conditions mean you have to compensate the worker higher abroad. However, in India, the manpower costs are quite low. So, you have a 15-20% cost advantage over companies in the US or in Europe. Three, the company has successfully managed a few breakthroughs into original equipment manufacturers.
On his bad investment and stocks he plans to weed out
There are a number of holdings, which have not given money in the recent past. However the decision to exit or not is linked to whether you expect them to perform in the future or not. For example, Swaraj Majda has not been performing- but I feel with time it should perform, hence holding on. This is an ongoing exercise and as and when you feel that a stock will not perform in the foreseeable future, you will exit it. At this stage I do not see anything like that in the portfolio.