Right now, investors can identify stocks which are at low valuations, but not which to avoid. That’s what we’re trying to address. Raghav Iyengar, Executive V-P, Head — Institutional & Retail Business, ICICI Prudential
With markets pushing up one set of stocks while leaving the rest languishing, a good many stocks are available cheap. ICICI Prudential’s Value Fund Series I, a close-ended value fund aims to buy fundamentally sound companies at low valuations. Raghav Iyengar, Executive Vice-President, Head — Institutional and Retail Business, ICICI Prudential, on the fund.
Excerpts from an interview:
Why launch a value fund now? How is it different from ICICI Pru Discovery, which also follows a value-based approach?
Over the last five years, there are certain sectors that have done very well. But there are a whole set of stocks in other sectors that have in fact lost value over this time. True, some of these are so for a good reason, and don’t have good fundamentals. These are value traps.
Right now, investors can identify stocks which are at low valuations, but not which to avoid. That’s what we’re trying to address. Besides, research shows that when the economy is at its bottom, a theme such as value plays out well. People make money when they are a little contra.
This fund will be a concentrated close-ended portfolio of 25-30 stocks. ICICI Pru Discovery has a more diversified set of stocks — 55-60 odd — with percentages ranging between 1-3 . In some of these stocks, the market capitalisation is not sufficient to warrant a large position in an open-ended fund.
Would the fund be tilted towards mid-cap stocks?
Small-cap stocks will be capped at 30 per cent of the portfolio. Mid-cap has been defined as capitalisation between Rs 1,000 and Rs 10,000 crore. So yes, there will be a fair share of these in the portfolio. But we will have large-cap stocks as well.
Where is value available now?
Our value fund will not have a sector theme to it. We believe that there are pockets of value in each sector. For example, while it is said that valuations in pharmaceuticals are high, there are still some stocks that are cheap. Similarly, there are a few mid-tier software stocks at good valuations.
The idea is to identify stocks which have potential to be re-rated. Our earlier picks such as GE Shipping and Tata Communications worked for this reason. We will be following an extremely bottom-up strategy, benchmarking value towards price-to-book.
With quite a few funds or stocks not doing well, what should investors do?
Markets are overpriced right now. Investors have to do a little more homework, and then take a decision. If stocks or funds are down for the right reasons it’s better to move out. It’s also an asset allocation call. If they’re in the right fund and underweight on equities, then they should be adding at this time. Investors should be looking at their portfolios every quarter and rebalance, if needed.
Where are investors putting their money now?
We’re getting a lot of inflows outside the top eight cities — there’s more optimism in, say, Lucknow or Kanpur or Surat. They’re also low on equities, at around 3 per cent. The other trend is that investors are putting money in international funds. Smart investors are realising that it provides a good diversification. Balanced funds are also working for us now; top flows are in our Volatility Advantage Plan.