Prashant Jain, the CIO of HDFC Mutual Fund, has been following a set routine for the past several years. When the market cracks to a significant extent and the average Raju investor runs away scared, it is Prashant’s job to calm his nerves and get him to come back and continue investing in stocks.
In May 2012, Prashant Jain was drawn to the end of his tether. Things were so gloomy that nobody was interested in stocks. In desperation, Prashant penned a piece titled “Its tomorrow that matters” in which he pulled out all the stops. Apart from copious reference to the scriptures (Kabir’s Doha), Prashant referred to three occasions when the stock markets had cracked – October 2001 (the 9/11 attack), June 2004 (defeat of the BJP) and November 2008 (sub-prime crises) – and pointed out that if one had closed his senses to the sights and sounds around him and blindly bought stocks, he would be staring at a great fortune today.
|Performance of investments made in adverse times|
|Time||Sensex Level||1 yr forward
|Main news / reasons||Total Returns
after 3 years
after 5 years
|Oct-01||2989||11||9/11 attack on WTC, global markets collapse||91%||334%|
|June-04||4795||10||Unexpected defeat of BJP in general elections||206%||202%|
|Nov-08||9093||11||Sub-prime crisis – Lehman collapse||77%||N.A.|
|Source: HDFC MF’s note|
Prashant Jain’s message was/is clear and unmistakable. If you buy stocks when the markets are down and there is great pessimism, you are guaranteed to make big money in the medium and the long-term.
Prashant Jain has been forced back to the drawing board because yesterday’s savage crash of 1625 points (5.02%) on the Sensex has sent shock waves across the investing community. The average Raju is again wondering whether investing in equities is such a good idea after all.
In his latest talk, Prashant Jain once again took investors on a history lesson, emphasizing that whether it was 2001, 2008 or 2013, whenever Indian markets have been trading at a reasonable value and have come off sharply because of global factors, it has always been a good opportunity to buy.
His words of advice require to be etched in stone:
“… one should focus on the local fundamentals because that is a driver of market medium to long-term. And one has observed that whenever market has fallen despite good fundamentals locally, due to global factors, these have proven to be very good times to invest in the medium to long-term view. So, I feel the same that the Indian economy is on the path to recovery, our current account is in very good shape, India has great growth prospects, our interest rates should come off as inflation has fallen much more than what was expected. So, all macro-economic indicators are green and we should do quite well over time.
I have seen that whether it was 2001, whether it was 2008, whether it was 2013, whenever Indian market have been trading at reasonable valuations and have come off sharply because of global factors. However, stock markets are indeed driven by sentiment over short periods of time and that is what we have seen on each of these occasions. But if the local fundamentals are good after three months, after one year, these things pass and with the benefit of hindsight, you realise that it was actually a good opportunity. Nothing was wrong with the country. It is just that stock market moved down because of weak sentiment towards equities globally.”
Now, the million dollar question is whether the average Raju is listening and whether he is inclined to follow Prashant Jain’s golden words of wisdom.