Notes from Prashant Jain’s Talk

Attended a talk yesterday by Prashant Jain,ED & CIO of HDFC Mutual Fund.

This talk was organised by the SK Group.

Here are the key takeaways from Prashant Jain’s talk:

His take on the Budget:

  • Its a no-nonsense Budget
  • Once GST is passed,Budget will become a simple boring affair
  • For first time in 25 years,he was able to leave office by 7-30 pm on Budget Day as there is no major policy changes in the Budget

His take on the Modi Govt:

  • It is a very purposeful and determined Govt
  • The Govt has a few priorities and all its actions can be seen from this framework:
    • Reduce the fiscal deficit: This will result in low inflation,low interest rates and more resources for the private sector
    • Increase tax revenues: Demonetization and GST leaves a trail that will widen the tax revenues
    • Stopping wasteful expenditures: Direct Cash Transfers using Aadhar and Bank Accounts have reduced siphoning off of funds
    • Improve service delivery to common man: Every scheme now has an “outcome based” approach instead of “outlay based” approach.For example,outcome of all villages electrified,133 kms/per day of roads,10L ponds under MNREGA etc
    • Simplify: Using Technology to simplify processes and doing away with redundant laws, policies and practices
    • Environment:  Supporting sources of energy like wind,solar etc
  • In the coming years, India will definitely reap the benefits from all the work done by the Govt

His take on Demonetisation: 

  • Short term pain for medium and long term good for the people of India
  • No impact on this in the next Quarter
  • Full effect was not realized due to collusion of Bankers

His take on the India Growth Story:

  • India is a secular growth story
  • It’s gowth increases every year  irrespective of domestic and global conditions
  • The reasons are as follows:
    • Demographics
    • Change from Joint to Nuclear Families
    • Low penetration of products/services
    • Faster and shorter product cycles
  • Real growth in India can cross 8% in the coming years

Why some companies are not growing despite GDP growth:

He gave example of Unilever.Said three reasons why it’s sales are stagnant:

  • Penetration levels are high.Soaps are there is most households…there are no new customers to be acquired
  • Aspirations levels are high.As the consumer’s income increases,he is not going to buy more soaps…he will use the money elsewhere
  • Competition-As new players like Patanjali come in,they take away market share from existing players as the size of the pie cannot be increased much

Two Sectors of the Economy Doing Badly:

  • Real Estate-There is a tremendous demand for real estate but high prices makes it unaffordable. Suffers from high demand,low affordability syndrome
  • Private Capital Expenditure- India does not require a power plant for the next 7/8 years.Private players in infra have been burnt badly

Macro Indicators of India are excellent:

Between FY2013 to FY 2016:

  • GDP Growth  increased from 5.6% to 7.6%
  • Fiscal Deficit reduced from 4.9% to 3.9%
  • FDI as % of GDP increased from 1.1% to 1.7%
  • Current Account Deficit reduced from 4.7% to 1.1%
  • CPI reduced from 10.2% to 4.9%
  • 10 Year GSec Yield reduced from 8% to 7.5%

For the first time in the history of India ,FDI is more than CAD.

His take on the Sensex:

  • Sensex is a very simple animal-it is a slave to earnings
  • Short term moves are unpredictable
  • Long term it has given a return of 15% CAGR in line with growth of economy
  • Foreigners understand Indian equity markets better than locals.
  • Their shareholding% of BSE 200 Companies has increased every year.In March 2001,it was 12%.By March 2016, it stands at a whopping 25% !
  • Feels Indians should hold equities like they hold gold-for 10-20-50 years

His take on market cycles:

  • Indian markets operate on the basis of cycles with clear sector leadership
  • Between 1995-2000,IT was the Sector leader.Infosys’s PE went from 15 to 300 !
  • Between 2000-2008,Capex.Banking and Commodities were the Sector Leaders. Jaiprakash Industries and Unilever India had the same market cap !
  • Between 2008-16, Pharma and Consumer were the Sector Leaders
  • When one sector takes leadership,all the money goes there and the rest of the markets become very undervalued
  • Now the time is ripe for beginning of a new market cycle
  • This new market cycle is characterised by:
    • Low inflation
    • Falling interest rates
    • Rising Capex
    • Peaking NPAs
  • The sector leaders for this cycle would be Corporate Banking,Metals & Mining and Industrials

His take on the Stock Market:

  • The Stock Market is very undervalued.
  • The Marketcap to GDP ratio is the lowest in 10 years

His take on various Sectors:

  • Corporate Banks-Bullish-NPAs are peaking,Banks are able to recover (e.g. Essar Oil).Makes an interesting point “Don’t confuse NPAs with losses.NPAs are an accounting entry,Loss is permanent erosion of Capital.”
  • Metals-Bullish-Feels cycle is turning.Both Tata Steel and JSW Steel have announced fresh capex plans
  • FMCG-Bearish-Feels low inflation environment does not favor them.Also,they are expensive
  • Pharma-Bearish-Feels they are expensive
  • Two Wheelers-Bearish-Feels their penetration is v high.Already 50% of Indian households own a two wheeler
  • Auto-Bullish-Increasing incomes,increasing aspiration and low penetration
  • Telecom-Confused-Not sure how new entrants will further act.Not possible to get multi-baggers from here
  • IT-Confused-Not sure how this sector will play out considering various headwinds
  • Insurance-Bearish.Three reasons:
    • Expensive valuations
    • GST may increase tax rates for insurers
    • India is not under-penetrated as far as insurance is concerned
  • Consumer/Lingerie-Bearish-Says super expensive trading at peak valuations

All in all, a great & candid talk by one of India’s most respected fund managers.

13 replies on “Notes from Prashant Jain’s Talk”

Thanks alpha ideas for sharing this information. It changes my perspective for lot many sectors

Brilliantly highlighted the main points by the blogger on Shri Jain’s talk, keeping it so simple. Keep it up Shri Raoji.

Nice and succinct synopsis. I think that we in India are relatively unsophisticated investors and needs to go understand and invest into the markets from not only the local perspectives but like Prashantji suggests like overseas investors do.

Great synopsis with crisp points. I am not sure about Pharma being expensive. Pharma demand is mostly inelastic versus economy and I believe there are still serious growth prospects remaining in domestic market as demography starts ageing (slowly) and spend on nutritional, supplemental, cosmetic and psychotropic drugs increase.

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