Prashant Jain: A look at stellar career of Mutual Fund industry's poster boy

Mumbai: Prashant Jain, one of India's best-known and successful fund managers, has resigned from HDFC Asset Management as its chief investment officer, marking the end of an era in the mutual fund industry. The company's board has appointed Chirag Setalvad as the equities head and Shobhit Mehrotra as the fixed income head, a release said.

His exit from HDFC Mutual Fund, the third-largest fund house with assets under management of over ₹4 lakh crore, did not surprise many on Dalal Street as the buzz of him leaving the fund house has been growing in the past few weeks.

While Jain's next assignment is not known, industry sources speculate that he might start an investment fund. He's unlikely to take up a role in the mutual fund industry, they said. Jain, could not be reached for comment.

As one of the country's long-serving fund managers, Jain has various firsts to his credit. Till recently, he directly managed ₹1 lakh crore across three schemes of HDFC Mutual, something no domestic investment manager has emulated so far. Jain is also the only Indian fund manager to complete 28 years of managing a single product: HDFC Balanced Advantage Fund, level with Fidelity's former star fund manager Anthony Bolton's record of managing the iconic Special Situations Fund for 28 years.

"Prashant Jain moving out is similar to Donald Bradman announcing retirement or the feeling when Roger Federer decides to quit," said Nilesh Shah, managing director, Kotak Mutual Fund. "It is not easy to retain the trust of people for over 25 years, especially in a market full of ups and downs. He has been able to always come out of it because of his intelligence, values and humility."

Jain is moving out of HDFC Mutual Fund at a time when the funds he managed have bounced back into the top quartile after a prolonged period of underperformance. His bets on corporate banks, utilities and public sector companies since 2015-16 had resulted in his schemes lagging behind rivals. A strong believer in value, he was averse to investing in consumer stocks and retail banks, which were the Street favourites in the past few years despite rich valuations, thanks to investor preference for growth stocks globally.

A graduate from Indian Institute of Management, Bangalore, Jain's unwavering conviction in sticking with cheaply valued stocks has been driven by past experiences. The key behind his success in fund management has been to stay out of momentum themes in a blazing bull market. In the late 1990s, amid the raging rally in technology stocks, Jain drew severe criticism as his schemes underperformed in the absence of these winners. When the tech bubble burst in the early 2000s, most equity schemes with big exposure to these stocks took a severe hit, while the funds that Jain managed remained largely unaffected. This was the turning point in Jain's career.

"When the star mutual fund managers of earlier times played the momentum and were stock pickers, Prashant's strategy was very clear: cut risks and minimize mistakes," said a senior fund manager with a large fund house. "He taught many of us in India that you can also make money by reducing mistakes and being patient."

This investment strategy helped Jain gain an army of followers among investors, who poured money into his schemes in the expectation that their money would be safe. But several investors lacked Jain's patience that has held him in good stead. Many investment advisors and investors lost faith in his schemes between 2016 and 2020 as his bets floundered in this period.

His belief in the philosophy that he followed for over two decades was vindicated from the second half of 2020 when the global investing world dumped growth in favour of value.

"Prashant Jain showed foresight on occasions that mattered most," said Dhirendra Kumar, founder, Value Research.

Jain has been able to follow his investment strategy steadfastly despite periods of underperformance partly because of the unconditional support from the fund house's parent HDFC, said senior officials at rival mutual funds. A lot of that is set to change. With HDFC to merge with HDFC Bank over the next year or so once the Reserve Bank of India (RBI) approves the proposal, some of HDFC's influential old-timers, who have backed Jain to the hilt, are likely to move out. Jain would have wanted to exit when the going was still good, said industry officials.