Prashant Jain on why this is a good time to buy stocks

A contrarian voice amid fervent calls for a cautious approach to equity investment at this point.

Here is what the reclusive, but highly rated Prashant Jain has to say on the ongoing turmoil in the market. In a note to his unitholders, the 43-year old executive director and chief investment officer of HDFC Mutual Fund says this is a good opportunity to "press the pedal on equity investments" (he is not saying whether by directly buying shares or through mutual funds!!!)

Jain, an ardent believer in the power of compounding, says there is little chance of going wrong while buying equities at a Sensex (forward) price to earning ratio of between 10 and 13.

Citing instances in the past, Jain says if you had bought the Sensex in September 2001 just after the 9/11 attacks, (when the index was available at a forward PE of 11) you 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.

Like Sachin Tendulkar makes batting look easy, 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) and PEs are more likely to be low when the news flow is adverse. Simple, isn't it! To be successful in investing, one should focus more on value and less on news flow."

Jain says the market is not yet factoring the benefits to the Indian economy from a downtrend in crude oil prices. Here is how he puts it:

"Sau sunar ki, ek luhar ki. This is a popular Hindi saying which means - 100 hits by the goldsmith have the same impact as 1 blow by the ironsmith. The not so appealing news items mentioned above miss one important happening and that is falling crude prices. Falling crude prices is the blow of the ironsmith, the positive impact of which is more than the negative impact of the rest."

Source: http://www.moneycontrol.com/news/market-outlook/prashant-jainwhy-this-isgood-time-to-buy-stocks_574965.html

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'I made my money by selling too soon.'

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