Prashant Jain bullish on PSUs, says they can be wealth creators

"Prudence means we invest in a good business. But another part to 'Prudence' is that if we buy a good business at a bad price, even in the long term we will not get good returns," says Prashant Jain.

Celebrated fund manager Prashant Jain said public sector undertakings can continue creating wealth over the long-term despite the strong run-up in stock prices post-Covid. He explained that the stocks were deeply undervalued because these companies belonged to more economy-centric sectors such as banks and capital goods, which were not performing well prior to the pandemic. At that time, the sectors that were dominating the scene were consumer, IT, and pharma.

“Since there were no public sector companies in these areas, and economy sensitive sectors were struggling, many of these stocks underperformed. This gave the impression that PSUs were not good in general,” he said. However, after Covid, the economy improved, and the outlook for economy-oriented sectors also improved, resulting in better stock performances.

“Today these stocks are doing well. Their P/E is still less, and these are growing companies, so over time they will create wealth," he said.

Also read: Prashant Jain’s maiden fund may get $1bn in commitments, disrupt AIF space

The '3P' philosophy

The veteran fund manager also chalked out his strategy and gave his take on current markets in an interview with CNBC Awaaz. Jain, who was the chief investment officer at HDFC Asset Management, quit after a long innings at the firm in July 2022 to start his own investment management firm 3P Investment Managers. “Investing has always been about not only investing in a good company with growth opportunities but buying it at the right price," Jain said. "If the price is already high, a good company may not give good returns in the long run. "

Further expounding on his investment philosophy, captured by his firm’s name 3P which stands for prudence, patience, and performance, Jain said he has always believed and followed the principal of investing in a sustainable business that gives shareholders positive returns. "Prudence means investing in a good business at a good price. If we buy a good business at the wrong price, even in the long-term we will not get good returns. After that, you need to be patient as the company performs which will yield goods returns and translate into performance for the investors.”

One of the PSUs Jain has always been bullish on is NTPC. With the benefit of hindsight, Jain says the markets’ earlier view on power sector was wrong. While solar and wind power will see an increase in market share, thermal still has growth opportunities. "With thermal power, the biggest cost is cost of borrowing. NTPC has the lowest cost of borrowing in our country in the sector. So my belief was that in solar and wind power also NTPC can compete well," Jain said.

On the underperformance of HDFC Bank in recent time, Jain said that the stock has seen a correction because earlier the stock price growth outstripped earnings growth for the bank. "As I said, when price increases, it could be that a time comes when the business grows but the returns don’t. I always say buy a good business but don’t buy it at a high price. I think its valuations are right now,” he said.

Having said that, Jain added that the bank has also become too big, especially after the merger. "When a company becomes big, it can grow with the market, but there will be some slowness in absolute growth. I think investors need to be patient," Jain said.

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