Avoid overreaction to HDFC MF CIO Prashant Jain's exit, say experts

Prashant Jain, who resigned from the post of chief investment officer (CIO) of HDFC Mutual Fund on Friday, is among the mutual fund industry’s most high-profile and celebrated fund managers.

Only a few days ago, he became the first fund manager in the country to cross the landmark of managing more than Rs 1 trillion in equity assets across four funds -- three for Indian investors and one for a sovereign wealth fund.

Jain also holds the track record for having managed a single fund for a longer duration than any other fund manager in the country. He began managing HDFC Balanced Advantage Fund (as it is called now) in 1994, and was thus at its helm for more than 28 years.

His career

Jain has an engineering degree from IIT Kanpur and a management degree from IIM Bangalore. He started his career with SBI Caps, before moving to 20th Century Mutual Fund. The latter was acquired by Zurich Mutual Fund, which, in turn, was taken over by HDFC Mutual Fund in 2003.

His funds

Jain managed the three funds with enviable success. In HDFC Balanced Advantage, a dynamic asset allocation fund with asset under management (AUM) of Rs 43,078.5 crore as on June 30, 2022, he delivered a compound annual return of 11.3 per cent over 15 years, beating the category average of 10.2 per cent. 

The fund has delivered a CAGR of 17.88 per cent since the date Jain started managing it; category average returns are not available for this period (the second fund in this category was launched only in April 2000). 

The difference in 15-year returns between the fund and category average may look small but over a longer period, it makes a big difference. For example, a Rs 100,000 lump-sum investment is worth Rs 498,227 at the end of 15 years, while a similar investment at category average return would yield Rs 429,263.

Jain also managed HDFC Top 100, a large-cap fund with Rs 19,910.5 crore under management, where he delivered a compound annual return of 11.9 per cent over 15 years, beating the category average of 9.5 per cent.

The third fund he managed was HDFC Flexi-cap, which has AUM of Rs 26,511.5 crore. In this fund, he generated a compound annual return of 12.6 per cent over 15 years, beating the category average of 11 per cent.

Even if one looks at the returns of these funds since Jain started managing them, he beat the category average with both HDFC Top 100 and HDFC Flexi-cap by a decent margin.

Investment style

Jain’s investment style focused on investing in reasonable quality businesses that offered scope for growth and were reasonably priced. “He was very conscious about valuations. He would not hesitate to reduce his exposure, or exit altogether, from those stocks that he felt had turned expensive. And he would move into stocks available at more attractive valuations, which he felt were offering a better risk-reward profile at that point of time,” says Kaustubh Belapurkar, director-manager research, Morningstar Investment Adviser India.

According to Vidya Bala, co-founder, Primeinvestor.in, “His investment style leant more towards value than growth. He liked to go against the prevailing consensus on sector choices. He foresaw the market reversals in 2000 and 2008 ahead of the rest and positioned his funds in a new set of sector leaders.”

His strength, according to Bala, is in his clarity of thought, and his experience of several market cycles which few fund managers in India possess.

Jain tended to exit early in a prolonged bull market. “While this could lead to periods of underperformance, it helped contain the downside. Also, his high-conviction bets that didn't work could sometimes lead to prolonged periods of underperformance that tested investor patience, as happened for two-three years up to 2020,” says Bala.

However, what investors got in his funds was fidelity to a fund management style that worked over the long term.      

What should investors do?

Experts say investors in Jain’s funds should avoid any knee-jerk reaction. HDFC Mutual Fund has a strong equity fund management team with several seasoned fund managers like Chirag Setalvad (now head-equities), Gopal Agrawal, and Roshi Jain. Navneet Munot, the current managing director and chief executive officer (CEO) of the fund house, was the CIO of SBI Mutual Fund for a long time.

Investors should, however, watch out for two things: A dip in performance and a change in fund management style.

“It is possible that with a new fund manager coming in, the way these funds are managed may change. If an investor had chosen these funds for their value orientation, and the style changes, then one may look at exiting them and moving into those that can provide them with a value-oriented exposure,” says Vishal Dhawan, chief financial planner, Plan Ahead Wealth Advisors. He, however, adds that investors should give these funds at least one year before they take any action.