ICICI Prudential India Recovery Fund Series 4: Cherry-picking large-cap stocks

The sharp market correction in recent times, particularly in sound large-cap stocks, has opened up buying opportunities for investors willing to take a long-term bet on India’s prospects . It is this theme that ICICI Prudential India Recovery Fund Series 4, a new fund offer that opened last week, seeks to play. The fund is a three-year (1,099 days) close-ended equity fund benchmarked against the S&P BSE 500 Index.

It proposes to make the most of the fall by investing in 15-20 high-conviction large-cap stocks.

Foreign outflows from the Indian equity market, along with the sell-off in other emerging markets, have led to good large-cap stocks being available for a song. While it is difficult to call a bottom, there is a case for investing selectively in the market.

Rather than fishing for individual stocks, it may be wise to choose a fund that can help you pick the right names. ICICI Pru India Recovery aims to invest in such stocks with proven management and performance track record. The relatively better prospects for India when compared to other emerging markets, possible uptick in investment cycle and buying opportunities in the large-cap space are three key themes that the fund seeks to gain from. Most of the macro-economic factors, according to the fund, have shown signs of improvement over the last two years, be it inflation, current account deficit or growth rates. Improving business sentiment and the government initiating reforms are expected to drive investment recovery. These parameters give the fund house a sense that recovery will happen over the next two to three years.

While these are sound themes that are likely to play out in the long run, you need to take note of a few things.

One, in a close–ended fund, you cannot exit mid-way either in case of exceptional returns by the fund or in case you are dissatisfied with the performance.

Two, open-end funds with a proven track record across market cycles — ups and downs — are always better bets than NFOs. There is a good number of tried and tested funds in the market that invest predominantly in large-cap stocks.

Franklin India Bluechip, Birla Sun Life Frontline Equity, SBI Magnum Equity as well as ICICI Pru Focussed Bluechip are some top-performing large-cap-oriented funds with a long track record.

The ICICI Pru Recovery fund will be managed by Manish Gunwani and Rajat Chandak. Manish also manages ICICI Prudential Focussed Bluechip and ICICI Prudential Balanced Advantage Fund. Both are among the top-performing funds in their categories. The NFO is open until February 22.

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