Prashant Jain: Morningstar downgrades two Prashant Jain managed funds

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Mutual fund rating agency Morningstar has downgraded two funds managed by star fund manager Prashant Jain from ‘gold’ to ‘silver’, saying that it sees an enhanced risks to the investment strategy employed by Jain. The agency said over the 5-year and 10-year time frames, the funds have been underperforming their respective benchmarks as well as category peers.

The two funds are HDFC Equity, a largecap fund, and HDFC Top 100, a multicap fund. Total asset under management in both funds stands at Rs 31,962.67 crore.

“Prashant Jain’s long-term investment approach, policy of staying fully invested and backing his convictions when the strategy is out of favour have often delivered pleasing results over the long term. But there have also been periods when his valuation-conscious approach is been out of favour,” said Himanshu Srivastava, research analyst at Morningstar.

As of May, HDFC Top 100 fund that tracks Nifty100 index had exposure to 50 stocks including RIL, ICICI Bank, ITC, Infosys, HDFC Bank and Larsen & Toubro, which are top holdings.

In the last six months, the scheme has eroded 19.61 per cent of its value while five-year returns stand at a meagre 4 per cent.

Similarly, HDFC Equity that tracks the Nifty 500 index has exposure to 44 stocks. Top six holdings include ICICI Bank, Larsen & Toubro, State Bank of India, ITC, Infosys and RIL. Six-month return for the scheme stands at -21 per cent and 5-year return 3 per cent.

“The portfolios are poised to benefit from the turnaround in the economic environment, but will continue to witness challenges until the trend reverses. To add to it, his investments in public sector enterprises have not yielded desired results,” Srivastava said in his analysis.

However, he added that Jain’s decision to not bet on NBFC stocks has proven to be right, and the events that played out in the NBFC space as he had anticipated.

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