ICICI Pru Midcap: Buy

Have a reasonably high risk appetite and looking for big returns? You should consider investing in a mid-cap fund that delivers ahead of its benchmark and category.

ICICI Pru Midcap is one such scheme that outperforms spectacularly during market rallies, though it falls in line with its benchmark during downturns.

Over one-, three- and five-year timeframes, the fund has beaten its benchmark, the CNX Midcap, by a fair margin.

The fund has churned the sectors in its portfolio deftly over the past threefour years and delivered well in this volatile period. ICICI Pru Midcap delivered 19.3 per cent returns over the past three years, which is higher than that of peers such as L&T Midcap and SBI Emerging Businesses.

Its return over the past one year is an enviable 81.7 per cent, which it managed by taking quality mid-cap bets and without getting into fancy or illiquid small-cap names.

At times, it also takes bets on large-cap stocks to benefit from broader market rallies as well as to insulate the portfolio during strong corrections.

ICICI Pru Midcap is suitable for investors with an above-average risk appetite and for those with a time horizon of at least five years.

Investors can buy units of the fund as a suitable diversifier. The SIP (systematic investment plan) route can be used to take exposure to the fund.

Portfolio and strategy In the market rallies of 2009, 2012 and the recent upswing, ICICI Pru Midcap has been able to participate quite well and has convincingly beaten its category’s returns and benchmark.

But the scheme’s NAV falls in line with its benchmark or a bit more during market downturns, as witnessed in 2008 and 2011.

Over the last few years, it has churned its holdings well. In 2012, it took the right bets and exposure to sectors such as software and pharma. It also held on to banks then.

Later, in 2013, the fund reduced exposure to banks by a considerable extent as stocks in the segment fell heavily on asset quality concerns.

But it did increase focus on auto ancillaries.

After a heavy correction, when banking stocks presented an attractive opportunity, the stakes in the sector were raised once again, thus helping it gain from the rally over the past one year.

In recent times, exposure to segments such as construction projects and capital goods too, has been increased.

Key holdings The bet is on quality names such as Sadbhav Engineering, ING Vysya Bank, Crompton Greaves, Mindtree, Tech Mahindra and Motherson Sumi, among others, which are the fund’s key holdings. As such, the risks are somewhat tempered in comparison to the levels normally associated with mid-cap funds.

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