Time to buy equity now, says HDFC's Prashant Jain

Trust the reclusive Prashant Jain to come up with a contrarian view. He is asking investors to prepare for the good times when thinking of equity investing.

In a note to his unitholders, the 43-year old executive director and chief investment officer of HDFC Mutual Fund says that this is a good opportunity to “press the pedal on equity investments. HDFC Mutual Fund is one of the biggest mutual funds in the country and Jain is credited for the consistency in the stock market performance of its equity schemes.

He suggested looking back at the past trend. If investors would have bought the BSE Sensex in September 2001 just after the 9/11 attacks, (when the index was available at a forward price-earnings (PE) ratio of 11), they would have made 84% over the next three years and 316% in five years. “And if you were bold enough to buy the Sensex during the collapse of the US housing market in June 2006 when the Sensex was going for a forward PE of 13, you would have made 61% in three years and doubled your money in five years,” Jain said.

Jain is an ardent believer in the power of compounding and says there is little chance of going wrong while buying equities at a Sensex forward PE of between 10 and 13. Jain wants us to believe that there is no rocket science to investing. “Good returns materialize over time on investments made at cheap valuations (meaning low PEs), Jain said. The market was yet to factor benefits to the Indian economy from a downtrend in crude oil prices.

Jain expects the Indian economy to grow faster over the next ten years than in the previous ten years. He believes that lower commodity prices would put an end to high interest rate cycle. He also highlights that a key contributor to Indian growth would be exports.

Indian exports are also gaining in competitiveness against China because of the depreciation in INR vs the Yuan and the higher wage inflation in China. These are the two key reasons that could lead to a further acceleration in growth rates in the current decade.