When Prashant Jain, the celebrated fund manager, quit HDFC Asset Management Co Ltd in July 2022, the country's third largest mutual fund (MF) house with assets under management worth Rs 5.16 lakh crore quickly expanded its fund management team.
Roshi Jain, Senior Fund Manager – Equities, was given the enviable task of managing one of the three largest equity-oriented schemes Prashant Jain had been running — HDFC Flexi Cap Fund (HFCF), which was earlier known as HDFC Equity Fund.
Jain, who was among the four new fund managers HDFC AMC hired since around 2020, has performed admirably despite stepping into some really big shoes. HFCF’s corpus has grown by nearly 33 percent since the time she took over in July 2022.
Prashant Jain was the Executive Director and Chief Investment Officer at HDFC AMC when he left to start his own fund.
Before HDFC AMC, Jain was with Franklin Templeton Asset Management (India) Pvt Ltd, where she spent close to 17 years.
Bringing her own style
Apart from HFCF, Jain manages HDFC Tax Saver (HTS) and HDFC Focused 30 Fund (H30). Broadly speaking, the styles of all three funds that Jain inherited remain the same. “The underlying philosophy of the fund house remains 'growth-at-reasonable-price’,” says Jain.
But dig deeper and you realise that Jain has made subtle changes in her portfolios. She cut exposures in the energy and consumer staples sector. “We saw significant price movement over the last one or two years and prices of some of the companies in these sectors had gone up a lot. And therefore, many of the stocks in the portfolio did not qualify under this theme anymore,” says Jain. Instead, she bought more of Information Technology (IT) and pharmaceutical stocks. The IT sector was particularly opportunistic given the drubbing it got in 2022 following a massive meltdown in the US IT sector. “Never get greedy, never be too fearful,” she says when asked if buying IT stocks at a time like that felt scary. Jain also bought more Auto related stocks (from 2.8 percent in March 2022, its exposure in HFCF’s portfolio went up to 5.1 percent in February 2023).
Among the sectors, Jain has also increased the schemes’ exposure to the defence sector in two of her schemes. HDFC AMC has been bullish about this sector’s prospects. In May, the fund house launched India’s first MF scheme focused on the defence sector.
Another subtle change that Jain made was to tighten the portfolios. In other words, she reduced the number of scrips, which is one of her signature styles of managing funds.
From 53 scrips that HFCF had held in June 2022, she bought it down to 43 by the end of July 2023. Similarly, HTS had around 56 stocks at the time she took over. By the end of July 2023, the scheme had 35 stocks. This, in part, comes from Jain’s long experience of managing a focused fund, at her earlier employer Franklin Templeton India Mutual Fund. And she did quite well there too. Between July 2012 and October 2021 when she managed Franklin India Focused Fund, she gave a return of 20 percent, as against the category average of 17 percent. “I’m happy to take a large overweight or underweight position. If a particular stock or the sector doesn’t fit the theme, I’m happy to exit it entirely and soon,” she says.
Size not a constraint
At Rs 38,668 crore worth of assets under management (AUM), HFCF is India’s 6th largest actively-managed equity fund, as per Value Research.
Is managing a large-sized scheme a challenge? Jain says the fund is large-cap oriented due to its current structure and hence a large size is not a problem. In fact, all three schemes that Jain manages have increased their large-cap allocation over the past year. HFCF is 81 percent invested in large-cap stocks, up from 79 percent in June 2022. H30 has 78 percent in large-cap stocks, up from 75 percent in June 2022. Both are flexi-cap funds, though.
HTS has the highest allocation towards large-cap stocks, but Jain says this is intentional. “HTS gives Section 80C income-tax deduction benefits. Given the competing instruments that give the Section 80C tax benefits are all fixed-income instruments, HTS is managed conservatively. Hence, this is a large-cap oriented scheme. Secondly, the nature of investors in this fund is such that they don’t usually invest more than Rs 1.5 lakh – the average investment size is, in fact, substantially lower than that,” says Jain.
The question is: Does a fund size impact performance? Jain doesn’t think so. “A fund manager just needs to have a different strategy to identify winners, if it doesn’t invest significantly in mid- and small-cap stocks. Obviously, the same tools don’t work if we are managing a large-sized fund,” says Jain, adding that size is not a constraint.
To be sure, the Rs 45 lakh crore Indian MF industry boasts of many large-sized equity funds today as equity markets have expanded. Up until 2009, there was not a single scheme that managed more than Rs 10,000 crore worth of assets. By the end of 2017, there were 19 funds with assets more than Rs 10,000 crore; five of which managed more than Rs 20,000 crore each.
At the end of August 2023, 63 funds managed assets more than Rs 10,000 crore each, 15 of which were more than Rs 30,000 each, and two were in excess of Rs 50,000 crore.
The performance
To HDFC AMC’s credit, led by Navneet Munot (Chief Executive Officer), Chirag Setalvad (Head-Equities) and Shobhit Mehrotra (Head-Fixed Income), the performances of HDFC MF schemes did not falter after Prashant Jain left the fund house in 2022. In fact, some of its equity schemes have picked up. To be sure, they had picked up during Prashant Jain’s tenure itself, as his investment philosophy had successfully turned around, just as Jain had predicted it. His successors like Jain continue his legacy.
On a rolling return basis, all three of Jain's schemes (HFCF, HTS and H30) are in the top quintile of their respective categories.
A big legacy
Does it feel intimidating to step into Prashant Jain’s shoes? After all, Prashant Jain had managed HFCF for around 18 years. “It’s humbling,” says Jain, who is also aware that there will be comparisons between the way Prashant ran the scheme and how she manages it. “So yes, it’s a big responsibility. But I don’t think responsibility should be seen as a burden. I see responsibility in a positive way, which ensures that I do my best for the scheme,” says Jain.
Dhuraivel Gunasekaran contributed to this story.
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