IDFC Imperial Equity - HOLD

Unit holders with a conservative investment approach can continue to hold IDFC Imperial Equity Fund. The fund's performance has lagged that of large-cap focussed peers such as Kotak 50, Franklin India Blue Chip and Reliance Vision over one- and three-year periods.

Nevertheless, its conservative investment approach and strategy promise to stand it in good stead in volatile markets.

Fresh investments, however, can be avoided, given the fund's chequered track record of performance during market rallies.

Strategy : The fund's stock picking strategy is limited to well-managed blue chips, which are capital efficient and available at attractive valuations. With a number of companies grappling with debt issues ranging from falling interest cover to FCCB redemptions now, the fund's investment approach would offer protection from these vagaries, to a great extent.

Performance: IDFC Imperial Equity has delivered compounded returns of minus 4 per cent, 23 per cent and 11 per cent over one-, three- and five-year periods. During these time frames, it bettered its benchmark, CNX Nifty over the one and five-year period only. Its three-year performance is quite ordinary, largely on account of its late entry into the 2009 rally.

The fund was high on cash in early 2009 and was relatively slow to move into equities. For instance, it had double-digit exposure to debt even as late as July 2009, by when the rally had caught full speed. As a result it returned only 67 per cent that year as against Nifty's 76 per cent and 71 per cent category average.

Incidentally, the fund's track record of performance during other market rallies has also been quite average. While it did decently well in 2007 (54 per cent versus category average of 47 per cent), its performance during the market upswings in 2009 and 2010 left much to be desired. A sustained focus on large-cap stocks and a conservative investment approach (tends to move into debt often) seem to have come in the way of higher returns.

The fund, however, has established its credentials of performing well during market corrections and periods of high volatility. For that matter, it shot to limelight for its noteworthy performance in 2008 when it limited its NAV losses to 42 per cent (the top fund in its category) even as most indices and large-cap equity funds bled profusely. CNX Nifty lost 52 per cent in 2008, while category average returns were pegged at minus 51 per cent.

Its performance in the volatile market of 2011 was also noteworthy. The fund contained its slide to 21 per cent, lower than its benchmark and category average, thus sealing its berth in the top quartile.

Portfolio : IDFC Imperial Equity has a very compact portfolio of stocks, an average of 28-32 stocks, with a good majority of them from the Nifty basket. Its recent portfolios have largely been centred on companies that are both low on debt or are cash-rich (companies such as TCS, Reliance Industries, Lupin, etc) and therefore not dependent on capital raising in the current high interest rate regime.

The fund's average price to earnings ratio for its portfolio at 18.5 times is lower than that of most peers. Over the year, the fund exited stocks such as Nestle India, Jindal Steel & Power, BHEL and Cairn India over the year, while it added stocks of Indraprastha Gas, Lupin, BPCL, SBI and Titan Industries, to name a few. Its current portfolio is skewed in favour of stocks of consumer plays as well as companies that benefit from a weak rupee. Financials, energy and technology stocks make up its top three sectors.

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