VR Logo

The Market's Soul is the Same

Prashant Jain, Executive Director & Chief Investment Officer, HDFC Asset Management Company, talks about his early days as a fund manager...

In this special interaction with Mutual Fund Insight, Prashant Jain, Executive Director & Chief Investment Officer, HDFC Asset Management Company, talks about his early days as a fund manager, the changes in the market over the past two decades, performance of his funds and why he does not get bored managing funds.

You have been a fund manager for many years and have been managing HDFC Prudence and HDFC Equity from 1994 and HDFC Top 200 from 1996. What has changed between then and now with the markets?
When I look back, it feels on one hand a lot has changed, but on the other nothing has actually changed. Way back in 1991 when I started my career, there was no screen based trading. To get a quote could take a few minutes and one would buy a ‘bhav’ copy on the way back to check the day’s prices. There were no mobiles. When travelling, we would stop at a PCO to check on the markets. Sell side research was less and information gathering itself was a major activity.
I remember we had tied up with a few scrap paper dealers to sell annual reports to us by the kilos. No companies visited us in our office except at the time of public issues. There was no investor relations role in companies, or for that matter investor conferences. Most funds were close-ended, daily NAVs were calculated, but published generally at weekly intervals. There were no CNBC-type channels and there were no mutual fund rating agencies. Air fares were less affordable and we were advised to keep travel to a minimum unlike today when people have to be prodded to travel more. Also, SIP meant having tea. Thus, a lot has changed!
Despite the explosion in information availability and other changes, the nature and character of the markets and its participants remain unchanged. Markets continue to be imperfect and driven by sentiments in the short-run. And, are close to perfect and driven by fundamentals in the long-run. Investor behaviour continues to be as much driven by fear and greed today as it was then. Even then, bulk of the money in mutual funds used to come after the best returns were over – UTI Mastergain collected Rs 4,000 crore in 1992 after the Sensex had moved from 400 levels to 4,000 levels between 1988 to 1992; at today’s prices it is about Rs 20,000-30,000 crore. Even today, the bulk of money in mutual funds comes after the best returns in the markets are over. In FY08, mutual funds received over Rs 50,000 crore at 20-25 PE when the Sensex levels were close to 20,000 compared to just Rs 120 crore in FY03 when Sensex was near 3,000 levels with the PE at 10. Thus, not much has changed. To summarise, the soul of the markets is the same, though the body has changed beyond recognition.

For most active fund managers great long-term performance can be attributed to a few key events or actions like big bets or avoidance. Can you recount any such key events in your career spanning two decades?
It is true that certain key actions have played an important role in my career. Buying IT in a major way in the mid 1990s and selling IT in 1999 or buying old economy stocks in sectors such as steel, auto, capital goods, banks, etc, during 1999-2000. Also, not buying real estate, NBFCs, power utilities in 2007 and instead buying FMCG, pharma, auto, etc, have all played an important role.
While these moves have played a significant role, meaningful value has also been created by a large number of companies that may not fit into these themes. Finally, when I look back, after 1995, barring one idea, in my opinion we have not lost serious money on an investment. Over the long-run, not losing money is as important, if not more, than identifying the winners.

Read Part 2 of this interview with details on the working of Sebi tomorrow..