Interview of Prashant Jain, CIO of HDFC AMC

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This interview took place at Delhi during the CFA Society India’s Value Investing Pioneer’s event, in 2019. It was conducted by Mr. Rajeev Thakkar, CIO of PPFAS Mutual Fund.

My quick notes:

  • On avoiding confirmation bias: they specifically look for sell-side analysts who have a contrary view to their own. They then have conversations with them and properly document their viewpoint, to identify weaknesses in their own thoughts.
  • Their aim in speaking with sell-side analysts in general is to get a deeper understanding of a specific industry or business or situation. They will listen to many, but eventually, put it all together to come up with their decisions.
  • On filtering noise: a part of commissions are distributed objectively based on the five best ideas submitted to them during a quarter (buy as well as sell). But each research house is permitted to submit only 3 ideas per year. The evaluation criteria are also shared transparently.
  • On process vs person: good processes can improve certainty of average outcomes. However, exceptional outcomes are still dependent on people in this industry. Experience is treasured and analysts are not rotated across sectors.
  • Analysts are encouraged to listen to investor calls of overseas companies in their sector as well. But we make a lot of effort to keep our analysts motivated to continue to deepen their understanding in the same sector.
  • Almost all portfolio managers also have a certain amount of research responsibility.
  • They’re not contrarian investors per se. They look at underlying value and how it will evolve. Sometimes, that can be a contrarian view. But they’ve often held positions that are also consensus positions – such as IT for a long time.
  • On whether everything is AAA at a price: they’d never buy companies with very bad governance, but they don’t necessarily look only for exceptional companies. Rather they look for sustainable businesses and decent prices. They are not in the business of buying just the best companies. They are in the business of investing.
  • On why invest in PSUs, where the Government is not necessarily looking to grow them as profitable businesses: a ten-year history of returns is not a good way to judge good or bad companies. PSUs are predictable businesses. They’re much easier to analyze. They don’t diversify into random areas. Their economics usually remains steady. It’s a question of buying at the right valuations.
  • On the conviction he had to stay away from the dot-com boom: He has been lucky!
  • How big is big enough? No fund in India is too large given the size of the market, at this point.
  • On identifying bubbles: when everyone wants to buy the same stocks, its a good sign.
  • Data is king. Don’t go just by personal anecdotal experience. De-growth of real earnings in India is 20-30%. The drop in financial savings is largely due to this, not materially because of lifestyle changes.
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