1) The document describes a new close-ended equity fund called ICICI Prudential Value Fund Series 1 that will invest in undervalued stocks using a value investing strategy.
2) The fund will take a focused approach, investing in 25-30 high conviction stocks, in order to benefit more from potential price increases in these stocks compared to broader funds.
3) It will use fundamental analysis to identify stocks trading at low price-to-earnings or price-to-book valuations, with strong dividends, and attractive returns on equity and capital employed. The strategy aims to find good companies at reasonable prices.
The CMO Survey - Highlights and Insights Report - Spring 2024
Value Fund Series 1 NFO Period Oct 18-31
1. GOOD COMPANIES
at
DISCOUNTED PRICES
OUR VALUE INVESTMENT PHILOSOPHY
Value Fund - Series 1
A Close-Ended Equity Scheme
NFO Period: October 18, 2013 to October 31, 2013
2. Contents
1
Why Equities Now?
2
Value Investing
3
Identifying Value in the market
4
Value Investing - Globally
5
ICICI Prudential Value Fund Series 1
6
Key Take Aways
2
4. Why Equities now? –
Valuations lagging Fundamentals
1,20,000
1,00,000
INR bn
80,000
60,000
40,000
Nominal GDP
2013
2012
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
0
2011
20,000
Mcap (BSE)
•
India's market cap to GDP indicates valuations are at historical low.
•
The gap between nominal GDP and market cap of BSE has widened post 2010
Source: Bloomberg
4
5. Why Equities now? – 2014 General Elections
S&P BSE Sensex
25000
20000
15000
10000
5000
1991 Elections Previous Govt
was dissolved just
16 months after
formation
1999 Elections - first time
a united front of parties
attained a majority
1996 Elections Hung parliament
1998 – Re-elections as
the Govt collapsed
0
19
99
90 991 992 993 994 995 996 997 998
1 1 1 1 1 1 1 1
19
2009 Elections - The
United Progressive
Alliance (UPA) led
by the Indian
National Congress
formed the
government.
2004 Elections –The Indian national
Congress gained majority with the
help of its allies.
00 001 002 003 004 005 006 007 008 009 010 011 012 013
2 2 2 2 2 2 2 2 2 2 2 2 2
20
In the past, elections have been a good trigger point for market direction.
Red mark represents elections in that year
5
6. Why Equities now? –
S&P BSE Sensex & Elections
Elections
Absolute Appreciation
Election Year
Date
Sensex
20%
Appreciation
50%
Appreciation
70%
Appreciation
1991
21-Jun-91
1361.7
Within 1 year
Within 1 year
Within 1 year
1996
9-May-96
3694.3
Within 2 years
1998
3-Mar-98
3646.0
Within 2 years
1999
7-Oct-99
4963.1
Within 1 year
2004
13-May-04
5399.5
Within 1 year
Within 2 years
Within 2 years
2009
16-May-09
12173.4
Within 1 year
Within 2 years
Within 2 years
The bull phase that started in 1991
ended in 1997.
Within 2 years
Above chart explains how S&P BSE Sensex has performed post elections.
Provided only for reference and understanding of market movement post elections. Nothing in the slide must be construed as
future performance of S&P BSE Sensex.
Source: www.bseindia.com and Election Commission of India
6
7. Why Equities now? –
Broad Market Valuations
Sensex P/E Ratio
Sensex P/B Ratio
29
8
26
7
23
6
20
Avg PE
17
5
4
Avg PB
3
14
2
20
13
20
12
20
11
20
10
20
09
20
08
20
07
20
06
20
05
0
20
04
1
8
20
03
11
Current valuations below 10 year average, despite some stocks trading at very high valuations
Source:www.bseindia.com
7
8. Why Equities now? –
Polarisation of Valuation
Defensives vs Cyclicals
P/E
30.0x
Defensives
25.0x
20.0x
15.0x
10.0x
Cyclicals
•
In the past, valuation gap between cyclical and defensives have converged
•
2013
2012
2011
2010
2009
2008
2007
2006
2005
5.0x
Since 2010, the gap has widened and defensives are trading at high valuations
Cyclical – Consumer Discretionary, Energy, Financials, Industrials, IT, Materials
Defensives – Consumer Staples, Healthcare, Telecom, Utilities
Source: UBS Securities
8
9. Why Equities now? – Market Segmented
Mid & Small Cap discount to Sensex
100%
90%
Mid cap discount
to Sensex
80%
70%
60%
Small cap discount to
Sensex
50%
Nov-10
Mar-11
Jul-11
Nov-11
Mar-12
S&P BSE Mid Cap
Jul-12
Nov-12
Mar-13
Jul-13
S&P BSE Small Cap
Since the last peak in Nov 2010 the Small and Mid cap stocks are trading at a discount to their Large cap
counterparts
Discount is calculated taking Nov’10 index values as base.
Source:www.bseindia.com
9
11. Value Investing
• Investing in stocks that trade at a discount to their true value.
• Investing at a price lower than what justifies the company’s long
term fundamentals.
• Value investing is a long-term strategy - it does not provide
instant gratification.
11
12. Value Investing – Margin of Safety
Margin of Safety is the difference between the intrinsic value of a stock and the price arrived
at after taking the worst case scenario in calculation of intrinsic value.
12
13. Understanding Value Investing
40,000
Values rebased to 10,000
35,000
Rs 34,405
30,000
25,000
Rs 20,193
20,000
Rs 19,892
15,000
10,000
Rs 10,386
5,000
0
0
c-1
De
1
r-1
Ma
S&P BSE Sensex
•
•
1
n-1
Ju
1
p-1
Se
1
c-1
De
2
r-1
Ma
Natco Pharma Ltd
2
n-1
Ju
2
p-1
Se
Amara Raja
2
c-1
De
3
r-1
Ma
3
n-1
Ju
3
p-1
Se
Tech Mahindra Ltd
During the period 2011-2013, BSE Sensex remained range bound.
However, during the same period stocks shown above have grown multi fold times.
This is a high level oversimplified illustration to explain the concept of Value Investing. Actual results may vary significantly from the ones mentioned here and may not
always be beneficial or profitable. The stocks given above should not in any manner be construed as recommendation and ICICI Prudential Mutual Fund/AMC may or
may not have any future position in these stocks. There may be other value stocks in the market which may have significantly underperformed large cap stocks. No
inference must be drawn that value stocks generate long term performance as there may be cases where such value stocks may actually be value trap.
Source: Bloomberg
13
15. Identifying Value in the Market
Earnings
180
Market Cap
7,000
MS Coverage Consumer Basket - Earnings vs Market Cap
160
6,000
140
Trailing Net Profit
120
5,000
Market Cap (RS)
100
4,000
80
3,000
60
2,000
40
1,000
20
0
in INR Bn
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
0
•
Between 2001 and 2003, the stocks in the consumer basket represented a value buying opportunity.
•
Market cap of these stocks did not mirror the consistently growing profits.
•
In the ensuing period the market realized the true value of these stocks and market cap soared.
•
Consumption basket is currently, trading near historical high valuations
Source: Morgan Stanley Research
15
16. Identifying Value in the Market
P/E
Large cap IT vs Midcap IT
40
35
30
25
20
15
10
5
0
2005
2006
2007
2008
TOP 4
2009
2010
2011
2012
2013
Mid Caps
•
It is believed that currently mid cap IT stocks are trading at attractive valuations compared to large cap IT stocks.
•
Revenue growth led to re-rating of mid cap IT companies in 2006.
This is a high level oversimplified illustration to explain the concept of identifying value. Actual results may vary significantly from the ones mentioned here and may not always be beneficial or profitable.
The stocks given above should not in any manner be construed as recommendation and ICICI Prudential Mutual Fund/AMC may or may not have any future position in these stocks. The performance
of stocks would ultimately depend on various factors such as prevailing market conditions, global political scenario, exchange rate etc. It may have adverse bearing on their performance.
Source: MSCI, RIMES, Top 4 - TCS, Infosys, Wipro, HCL Tech Midcap – Mindtree, Hexaware & Infotec Ent.
16
17. Identifying Value in the Market
S&P BSE Midcap Index
P/B
9
10000
8
9000
7
8000
7000
6
6000
5
5000
4
4000
3
3000
2
2000
1
0
2006
1000
Current valuations close to 2009 lows
2007
2008
2009
2010
2011
BSE Midcap P/B
BSE Midcap
2012
0
2013
•
Midcap valuations are currently at 2009 lows. The midcap index rallied from 3300 levels to 8000 levels between
2009-2011.
•
The increase in book value of the stocks in the midcap index has not been accompanied by increase in
valuations.
Source:www.bseindia.com
17
18. Identifying Value in the Market
Top 20 performers vs Rest of the market
350
300
Values rebased to 100
250
200
150
100
50
0
2007
2008
2009
Top 20 performers
2010
2011
Bottom 80 performers
2012
2013
BSE100
•
The top 20 stocks have trebled, now making up 30% of the BSE100 market cap versus barely 10% in Dec-07
•
These stocks continue to outperform, providing gloss to the headline indices like Sensex and Nifty
Source: Bloomberg, Jefferies estimates
18
20. Value Investing – Globally, is working
600
500
400
CHINA INDICES
MSCI China Value Index
MSCI China Index
Values rebased to 100
RUSSIA INDICES
1200
MSCI Russia Index
1000
Values rebased to 100
800
2500
2000
13
12
20
11
20
10
20
09
20
08
20
07
20
06
20
05
20
20
20
20
04
0
0
1
2
3
4
5
6
7
8
9
0
1
2
200 200 200 200 200 200 200 200 200 200 201 201 201
20
0
03
200
20
100
02
400
20
200
01
600
00
300
MSCI Russia Value Index
US INDICES
Values rebased to 1000
1500
1000
500
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
S&P 500 Value Index
Source: Bloomberg
Russell 2000 Value Index
S&P 500 Growth index
20
21. The Product
Value Fund - Series 1
(A Close-ended Equity Scheme)
This product is suitable for investors who are seeking*:
• Long term wealth creation solution
• A close-ended diversified equity fund that aims to provide capital appreciation by investing in a well
diversified portfolio of stocks through fundamental analysis.
HIGH RISK
(BROWN)
* Investors should consult their financial advisers if in doubt about whether the product is suitable for them.
Note: Risk may be represented as:
(BLUE) investors understand that
their principal will be at low risk
(YELLOW) investors understand that
their principal will be at medium risk
(BROWN) investors understand that
their principal will be at high risk
21
22. About the fund
• A 3 year close ended scheme of focused 25-30 high conviction stocks.#
• Aims to:
• Find commendable companies at reasonable price rather than generic companies
at bargain price.
• Capture profits by selling equities or using derivatives.
• Declare commensurate dividends.*
• Invest in multi-cap stocks.
*Dividends will be declared subject to availability of distributable surplus and approval from Trustees
#The number of stocks provided is to explain the investment philosophy and the actual number may go up or down depending on then prevailing market conditions
at the time of investment
22
23. Why Focused Approach?
Some value picks in existing funds
Fund 1
% to NAV
Fund 2
% to NAV
Value Stock 1
0.21%
0.60%
Value Stock 2
0.25%
1.38%
Value Stock 3
0.56%
0.30%
Value Stock 4
0.57%
1.33%
Company/Issuer
• Due to large fund size and liquidity condition of the above stocks, size of holding is small.
• Any favourable movement in the stock prices may have a nominal effect on the overall portfolio
returns.
For illustration purpose only
23
24. Why close ended?
Exposure to
less traded
stocks
Aiming to
identify
potential
much ahead
of the market
Restrict
in/outflow to
capture limited
market
opportunity
Lock-in brings in the necessary discipline
24
25. Investment Approach
Absolute and
relative basis
• Low P/E, P/B
• Good Dividend Yield
• Valuation attractive relative to peers / market
Cyclical stocks
• Aim to identify sectors in a downturn
• Aiming to buy good companies to play for revival of the sector
Contra play
• Companies going through bad news-flows
• Increased competitive environment, etc.
Growth stocks at
reasonable valuations
• High Return on equity and capital employed
• Low Debt
Others
• Demerger / Spin-offs by companies
• Mergers & Acquisitions
• Value unlocking from subsidiaries, sale of assets
25
26. Stock Selection Process
Recurring process
5000+ stocks
300
Data Integrity Screens
Investable Universe
Company Characteristics
Financial Strength • Business Durability • Management Behavior
100
Valuation & Fundamental verification
Value Parameters
Low PE/PB • Good Dividend Yields • Attractive ROE/ROCE
High Conviction Portfolio (25 - 30 stocks)*
Daily Risk control
*The number of stocks provided is to explain the investment philosophy and the actual number may go up or down depending on then prevailing market conditions
at the time of investment
26
27. Key Take Aways
•
Institutional participation lopsided towards the top 15-20 stocks; valuations attractive
in other pockets.
•
The fund aims to hold limited number of stocks; allowing the scheme to benefit from
potential positive price movements.
•
Post 2008, the fund house has gained experience in managing close ended funds.
•
Existing track record of managing value oriented funds.
•
Past experience has shown that investors have earned returns when investments are
made in bear phases.
27
28. Scheme Features
Type of scheme
A Close ended equity scheme
Investment Objective
The investment objective of the Scheme is to provide capital appreciation
by investing in a well diversified portfolio of stocks through fundamental
analysis. However, there can be no assurance that the investment
objectives of the scheme will be realized.
Options
Direct Plan – Dividend Option; Regular Plan – Dividend Option
Only Dividend payout facility available
Minimum Application Amount
Rs 5,000 (plus in multiple of Rs.10)
Entry Load
Not Applicable
Exit Load
Not Applicable
Benchmark Index
S&P BSE 500 Index
Fund Manager
Mr. Sankaran Naren & Mr. Mittul Kalawadia
28
29. Disclaimers
Disclaimer: In the preparation of the material contained in this document, the AMC has used information that is publicly available, including information
developed in-house. Some of the material used in the document may have been obtained from members/persons other than the AMC and/or its
affiliates and which may have been made available to the AMC and/or to its affiliates. Information gathered and material used in this document is
believed to be from reliable sources. The AMC however does not warrant the accuracy, reasonableness and / or completeness of any information. We
have included statements / opinions / recommendations in this document, which contain words, or phrases such as “will”, “expect”, “should”,
“believe” and similar expressions or variations of such expressions, that are “forward looking statements”. Actual results may differ materially from
those suggested by the forward looking statements due to risk or uncertainties associated with our expectations with respect to, but not limited to,
exposure to market risks, general economic and political conditions in India and other countries globally, which have an impact on our services and /
or investments, the monetary and interest policies of India, inflation, deflation, unanticipated turbulence in interest rates, foreign exchange rates, equity
prices or other rates or prices etc.
The AMC (including its affiliates), the Mutual Fund, the trust and any of its officers, directors, personnel and employees, shall not liable for any loss,
damage of any nature, including but not limited to direct, indirect, punitive, special, exemplary, consequential, as also any loss of profit in any way
arising from the use of this material in any manner. The recipient alone shall be fully responsible/are liable for any decision taken on this material.
The sector(s)/stock(s) mentioned in this presentation do not constitute any recommendation of the same and ICICI Prudential Mutual Fund may or may
not have any future position in these sector(s)/stock(s). Past performance may or may not be sustained in the future. The portfolio of the scheme is
subject to changes within the provisions of the Scheme Information document of the scheme. Please refer to the SID for investment pattern, strategy
and risk factors.
Investors are advised to consult their own legal, tax and financial advisors to determine possible tax, legal and other financial implication or
consequence of subscribing to the units of ICICI Prudential Mutual Fund.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
29