icici prudential value fund 170913.ppt - wealth...
TRANSCRIPT
NFO Period: 18th to 28th October 2013
ICICI Prudential Value Fund – Series 1(A close ended equity scheme)
Value InvestingValue Investing
Why Equities Now?Why Equities Now?
Identifying Value in the marketIdentifying Value in the market
Value Investing - GloballyValue Investing - Globally
ICICI Prudential Value FundICICI Prudential Value Fund
Key Take AwaysKey Take Aways
Why Equities now?
60,000
80,000
1,00,000
1,20,000
Nominal GDP Mcap (BSE)
INR bn
Why now? – Valuations lagging Fundamentals
India’s Nominal GDP vs Market cap
0
20,000
40,000
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
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
Why now? – 2014 General Elections
2009 Elections - The
In the past, elections have been a good trigger point for market direction.
Red mark represents elections in that year
1991 Elections
- Previous Govt
was dissolved
just 16 months
after formation
1996 Elections -
Hung parliament
1998 – Re-elections
as the Govt collapsed
1999 Elections
- first time a
united front of
parties attained
a majority
2004 Elections –The Indian national
Congress gained majority with the help of its
allies.
2009 Elections - The
United Progressive
Alliance (UPA) led by
the Indian National
Congress formed the
government .
Why 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
The bull phase that started in
1991 ended in 1997.
Source: www.bseindia.com and Election Commission of India
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.
1996 9-May-96 3694.3 Within 2 years 1991 ended in 1997.
1998 3-Mar-98 3646.0 Within 2 years 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
Why now? – Broad Market Valuations
Avg PE
10
15
20
25
30
SensexSensexSensexSensex P/E RatioP/E RatioP/E RatioP/E Ratio
2
3
4
5
6
7
8
SensexSensexSensexSensex P/B RatioP/B RatioP/B RatioP/B Ratio
Avg PB
Current valuations below 10 year average, despite some stocks
trading at very high valuations
Source:www.bseindia.com
0
5
0
1
2
10.0x
15.0x
20.0x
25.0x
30.0x
Defensives
Why now? - Polarisation of ValuationP/E
Defensives vs Cyclicals
5.0x
10.0x
2005
2006
2007
2008
2009
2010
2011
2012
2013
Cyclicals
Cyclical – Consumer Discretionary, Energy, Financials, Industrials, IT, Materials
Defensives – Consumer Staples, Healthcare, Telecom, Utilities
•In the past, valuation gap between cyclical and defensives have converged
•Since 2010, the gap has widened and defensives are trading at high valuations
Source: UBS Securities
70%
80%
90%
100%
Mid & Small Cap discount to Sensex
Why now? - Market Segmented
Mid cap discount to Sensex
50%
60%
70%
Nov-10 Mar-11 Jul-11 Nov-11 Mar-12 Jul-12 Nov-12 Mar-13 Jul-13
S&P BSE Mid Cap S&P BSE Small Cap
Small cap discount to
Sensex
Since the last peak in Nov 2010 the Small and Mid cap stocks are trading at a
discount to their Large cap counterparts
Source:www.bseindia.com
Discount is calculated taking Nov’10 index values as base.
Why now? – Valuations at previous lows
S&P BSE Midcap IndexP/B
3000
4000
5000
6000
7000
8000
9000
10000
2
3
4
5
6
7
8
9
Current valuations close to 2009 lows
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
0
1000
2000
0
1
2
2006 2007 2008 2009 2010 2011 2012 2013
BSE Midcap P/b BSE Midcap
100
150
200
250
300
350
Why now? - Dichotomy in Valuations
Top 20 performers vs Rest of the market
0
50
100
2007 2008 2009 2010 2011 2012 2013
Top 20 performers Bottom 80 performers 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, Values rebased to 100
Value Investing
Value Investing
Investing in stocks that trade at a discount to
their true value.
Investing at a price lower than what justifies 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.
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.
Understanding Value Investing
100
150
200
250
300
350
400
During the period 2011-2013, BSE Sensex remained range bound.However, during the same period stocks shown above have grown multi fold times.
Source: Bloomberg, Values rebased to 100
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.
0
50
S&P BSE Sensex Natco Pharma Ltd Amara Raja Tech Mahindra Ltd
Identifying Value in the marketIdentifying Value in the market
Identifying Value in the MarketEarnings Market cap
1,000
2,000
3,000
4,000
5,000
6,000
7,000
20
40
60
80
100
120
140
160
180
Trailing Net Profit Market Cap (RS)
MS MS MS MS CoverageCoverageCoverageCoverage Consumer Basket Consumer Basket Consumer Basket Consumer Basket ---- EarningsEarningsEarningsEarnings vsvsvsvs Market CapMarket CapMarket CapMarket Cap
Between 2001 and 2003, the stocks in the consumer basket represented a value
buying opportunity.
Market cap of these stocks did not retaliate to 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
0
1,000
0
20
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
in INR Bn
Identifying Value in the MarketPE
Large cap IT vs Midcap IT
10
15
20
25
30
35
40
• 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.
Source: MSCI, RIMES, Top 4 - TCS, Infosys, Wipro, HCLT Midcap – Mindtree, Hexaware & Infotec Ent.
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.
0
5
10
2005 2006 2007 2008 2009 2010 2011 2012 2013
TOP 4 Mid Caps
Valuations of MSCI India FinancialsP/B
Identifying Value in the Market
2.6
3.6
4.6
5.6
6.6
Source: MSCI, RIMES
Banking sector trading below its historical average price to book value
Some banks are trading at Price to Book value of less than 1.
P/B – Price to Book ratio
0.6
1.6
2.6
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Identifying Value in the Market
P/B
4
5
6
7
8
9
10
Price to Book Value
Top-20 stocks of S&P BSE 100 are trading close to their peak valuations
while the rest of the 80 stocks are just 25% above their lows.
Source: Bloomberg, Jefferies estimates
0
1
2
3
4
2007 2009 2010 2011 2012 2013
Top 20 Others
Value Investing - GloballyValue Investing - Globally
China IndicesChina IndicesChina IndicesChina Indices Russia IndicesRussia IndicesRussia IndicesRussia Indices
Value Investing – Globally, is working
0.00
100.00
200.00
300.00
400.00
500.00
600.00
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
MSCI China Index
MSCI China Value Index
0
200
400
600
800
1000
1200
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
MSCI Russia Index
MSCI Russia Value
Index
Source: Bloomberg, Index values are rebased to 100 and 1000
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12 20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
0
500
1000
1500
2000
2500
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
US IndicesUS IndicesUS IndicesUS Indices
S&P 500 Value Index Russell 2000 Value Index S&P 500 Growth index
The Product – ICICI Prudential Value Fund – Series 1The Product – ICICI Prudential Value Fund – Series 1
A 3 year close ended scheme of focused 25-30 high conviction stocks.#
Aims to:
Exploit valuation gap with potential to unlock value.
Find commendable companies at reasonable price rather than generic
About the fund
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 large, mid and small 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 thenprevailing market conditions at the time of investment
Why Focused Approach?
Some value picks in existing schemes
Company/IssuerFund 1
% to NAV
Fund 2
% to NAV
Stock 1 0.21% 0.60%
Stock 2 0.25% 1.38%
Stock 3 0.56% 0.30%
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.
Stock 4 0.57% 1.33%
For illustration purpose only
Value stocks on absolute and relative basis
• Low P/E, P/B, good Dividend Yield, valuation attractive relative to peers /
market
Cyclical stocks at bottom of the cycle
• Aim to identify sectors in a downturn and buying good companies to play
for revival of the sector
Investment Approach
for revival of the sector
Contra play
• Aim to buy good companies going through bad news-flows, increased
competitive environment, etc.
Growth stocks at reasonable valuations
Others
• Demerger / Spin-offs by companies, Mergers & Acquisitions, Value unlocking
from subsidiaries, Sale of property.
Stock Selection Process
•3100 StocksData Integrity Screens
Investable Universe
Company Characteristics• Financial Strength • Business Durability • Management Behavior
Re
cu
rrin
g p
roc
es
s
5000+ stocks
300
High Conviction Portfolio (25-30 stocks)*
Valuation & Fundamental verification
Value Parameters• Low PE/PB • Good Dividend Yields • Attractive ROE/ROCER
ec
urr
ing
pro
ce
ss
Daily Risk control
100
*The number of stocks provided is to explain the investment philosophy and the actual number may go up or down depending on thenprevailing market conditions at the time of investment
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
Key Take Aways
Post 2008, the fund house has gained experience in managing
close ended funds.
In managing this fund, we would draw upon our previous
experience in managing value oriented funds.
Past experience has shown that investors have earned returns
when investments are made in bear phases.
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.
Options Direct Plan – Dividend Option
Regular Plan –Dividend Option
Only Dividend payout facility available
Minimum Application Amount Rs.5,000 (plus in multiple of Re.10)
Scheme Features
Minimum Application Amount Rs.5,000 (plus in multiple of Re.10)
Entry Load Not Applicable
Exit Load Not Applicable
Benchmark Index S&P BSE 500 Index
Fund Manager Mr. Mittul Kalawadia
Mr. Sankaran Naren
Mutual Fund investments are subject to market risks, read all scheme related
documents carefully.
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,
Statutory Details & Risk Factors
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.