Often times, companies tend to face disruptions that can alter their business landscape considerably. An innovative new entrant that is fiercely competitive, sudden government regulations (domestic and overseas), managerial moves at the board or management level that result in conflicts, or even adverse lawsuits can hurt the best of companies, albeit temporarily.

These circumstances, generally referred to as special situations, often result in a stiff correction of stock prices of robust companies even. Such falls in prices often present attractive entry points for investors and fund managers, given the prospect of prices rallying sharply once the uncertainties blow away.  

ICICI Prudential India Opportunities focuses on such companies and has delivered a robust performance since January 2019, when it was rolled out. By buying companies that have corrected or are close to the bottom of a declining phase due to temporary challenges, the fund has delivered superior returns. It could be likened to a blend of contrarian and value plays.

Though a diversified thematic scheme, its returns over the past four-plus years can be compared favourably with the best in the regular equity categories.

Here’s why the fund can be considered for your portfolio over the long term.

Consistently robust returns

ICICI Prudential India Opportunities has been around for a little under five years. We have previously recommended buying the fund in Feb-2021.

Over one, two, three and four-year timeframes, the fund has outperformed its benchmark – Nifty 500 TRI – on a trailing return basis. It has given 9-14 percentage points more than the Nifty 500 TRI across horizons, making it one of the best performing thematic equity funds across categories.

When we take 3-year rolling returns basis from the time of the fund’s inception (January 2019) till September 2023, ICICI Prudential India Opportunities has given mean returns of 28.3 per cent, while the benchmark has given only 13.9 per cent over the same period.

Again, on a rolling 3-year returns basis, from the fund’s inception till the present, the scheme has outperformed the benchmark all the time (100 per cent).

Three-year SIP investments made in the fund would have delivered a return (XIRR) of a healthy 30.81 per cent, while a 4-year SIP would have given a staggering 32.64 per cent return, according to data from Valueresearch.

The fund has an upside capture ratio of 121.74, indicating that it rises much more than the benchmark Nifty 500 TRI during rallies. Its downside capture ratio is 73.2, suggesting that the fund’s NAV falls a lot less than the benchmark during corrections. A score of 100 indicates that a fund performs in line with its benchmark.

Astute portfolio moves

ICICI Prudential India Opportunities fund takes a blend of value and contrarian approaches to selecting stocks and sectors for the portfolio. But the picks have always been companies with sound fundamentals and execution track record, but which currently face a temporary headwind. In the period after the market crash of March 2020, the fund increased its exposure to power, telecom and metal stocks when they were all out of favour, and gained immensely from the subsequent rally. Similarly, the fund had substantial exposure to the banking segment before the turnaround in 2021.

In late 2021 and later in 2022, pharma stocks corrected sharply after the initial Covid-19 driven rally faded out. ICICI Prudential India Opportunities used the fall to buy specific pharma stocks as valuations became attractive.

Past holdings in companies such as Mahindra & Mahindra (despite auto industry then being in a low demand and struggling environment) and Hindalco Industries (even when there was a global slowdown after COVID recession) have turned multi-baggers for the fund. Among the picks it has held for long are Bharti Airtel, NTPC and Sun Pharmaceuticals, which were bought when there were company-specific, regulatory or industry uncertainties.

ICICI Prudential India Opportunities adopts a flexi cap approach to investing in stocks. Till 2021, it was more large-cap oriented, with over 70 per cent held in such stocks, and the rest in mid- and small-caps. In the past one year or so, the fund has taken a more multi-cap approach. Its July 2023 factsheet indicates a 59.6 per cent exposure to large caps, 16.4 per cent to midcaps, and 13.1 per cent to small caps. Thus, the fund sports a well-diversified portfolio, with the ability to deliver outperformance over the long term.

Given its value-centric style and the special situation driven buying, it may have occasional timeframes of weak performances. Therefore, investing via the SIP route would be better for investors.

Why invest
Expertise in profiting from special situations
Healthy returns, good track record for SIPs too
Mix of value and contrarian investment styles