ICICI Prudential Value Discovery: Search for value pays off

A considerable exposure to large-cap stocks and a value-based investment approach make ICICI Prudential Value discovery a good fund to consider in an uncertain market.

The fund has managed to beat its benchmark, the S&P BSE 500, in eight out of the last 10 years. In the last one year, the fund has delivered a return of 7.5 per cent against a return of 7 per cent by its benchmark. The out-performance was wider in the last three years, with the fund giving an annualised return of 25.1 per cent against the benchmark’s 13.2 per cent gains.

On a one-year rolling return basis, it has outdone its benchmark 91 per cent of the time in the last three years. More importantly, in the last five years, it has managed to outperform its peers such as Templeton India Equity Income while being on par with Birla Sun Life Pure Value.

The fund essentially is a multi-cap fund that invests in stocks that are undervalued .

The fund’s investments are concentrated in fewer stocks than its peers, which is noticeable from its top 10 holdings. Its top 10 comprised 54 per cent of its total portfolio as against 30 per cent for L&T value and 38 per cent for Birla Sun Life Pure Value.

Currently, the fund is heavily biased towards large-cap stocks – about 79 per cent of its portfolio. Another 20 per cent is in mid-caps and about 1 per cent in small-caps. With its asset base being large — ₹14,874 crore, the fund is likely to face constraints in gaining large exposure to mid-caps.

In the past, it did have a bad patch during 2006-2008, when it underperformed its benchmark. However, in the last eight years, it has outperformed its benchmark every single year. The fund has especially done well during times of a sharp bounce-back in equities; typical of value-based funds. During the bull phase of 2009 and 2014, the fund managed to deliver wide out-performance vis-à-vis its benchmark, with returns of 42 per cent and 59 per cent respectively.

In the last one year, Bajaj Finserv, Petronet LNG and Balkrishna Industries, some of its picks, paid off handsomely. While the share price of Petronet LNG was up by 66 per cent in the last one year, it was up by more than 50 per cent for Bajaj Finserv and Balkrishna Industries. In contrast, United Spirits and Gateway Distriparks dragged down its overall performance — with the stock prices of both the companies falling by more than 30 per cent in the last one year.

During the year, the fund took fresh exposure in Sun Pharma (6.5 per cent) and Maruti Suzuki (2.5 per cent) while completely exiting from Reliance Industries, Tata Motors and Bank of Baroda.

In terms of sectors, it has increased stake in large software companies (currently at 9.9 per cent of portfolio) over the last year, followed by private banks (6.4 per cent) and Indian pharma — bulk drugs (5.8 per cent). Among large software companies, it has significantly increased stakes in Wipro and Infosys.

Currently, Larsen & Toubro, Wipro and HDFC bank are its top stocks, while in terms of sectors it is software (17.7 per cent), banks (16.3 per cent) and construction (10.4 per cent).

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