ICICI Prudential Asset Management Company's CIO S. Naren is your quintessential contrarian. While the rest of the investing world worries about earnings growth not coming, Naren worries about when earnings growth will come - leading to irrational investor behavior. When most financial experts advise you to throw caution to the wind and invest hook, line, and sinker into equities, Naren advises caution. And when most fund managers are speculating that we are at the cusp of a furious bull market, Naren doesn't mind sticking his neck out and prophesizing that we're really in the "middle" of an equity market cycle, from which point on returns will likely be more muted than explosive.
This is probably one of the chief reasons why when ICICI Prudential AMC (India's largest AMC by funds managed) launches an NFO, the investing populace and the advisory community jointly stand up and take notice. In a world where NFO's are thoughtlessly launched without any rationale per se (why do we need yet another balanced fund or dynamic bond fund, after all?), the latest one to flow out of their stable makes sense on several counts.
ICICI Prudential Value 13, as the name suggests, is the 13th fund to be launched in a series of successful ones. It's NFO period will run from 25th April to 9th May, and you might want to consider allocating some moneys into it. How much, would depend upon your individual risk tolerance and time horizon. ICICI Prudential Value 13 is meant for investors with a time horizon of at least 3-4 years, and with a high-risk appetite. Additionally, it's a close ended fund - as a rule of thumb, even high risk investors should not allocate more than 1/3rd of their portfolios towards close ended funds, as a category.
The fund has a rather unusual lock-in period of 1329 days, or roughly three and a half years. Interestingly, it does not offer a growth option, but rather, provides only a dividend option to investors. Both these product features are in line with the fund management team's beliefs regarding the next phase of the Indian equity markets, as we'll see.
Why you should consider ICICI Prudential Value 13 Why does it make sense? For two reasons, primarily. One, the fact that we're currently in the "mid-cycle" of the equity markets, which bears similar characteristics as did the 2005-06 phase. Such a phase is invariably followed by a "boom" cycle phase, which is marked by high earnings growth, high credit offtake, high capex, and an unusual degrees of risk tolerance from investors. Unfortunately, boom cycles don't last very long; they invariably give way to capitulation, and much heartache and financial loss. The second reason the NFO makes sense is the fact that investment opportunities that exist today, are more concentrated into pockets than broad based.
ICICI Prudential AMC's view is that when markets transition from a mid-cycle to a boom-cycle (as it likely will over the next 2-3 years), it becomes extremely difficult to inculcate rational investor behavior. During these times, investors generally display a propensity to invest larger sums of money into equities, goaded by euphoria and greed. Investing into this NFO will, in a sense, save investors from themselves - as the fund is geared to take aggressive cash calls if and when required. In other words, when markets become overexuberant, the fund plans to gradually offload equities, book profits, and release dividends to its investors. If history is anything to go by, this is likely to be the exact opposite of what retail investors will do, left to their own devices.
Intended ThemesThe fund is extremely clear on the themes that it intends to play. First, it will operate with the view that infrastructure will continue to outperform the broader market in the next phase. Within infrastructure, the fund management team is likely to be circumspect when it comes to real estate, whose growth may be temporarily hindered by the passage of the RERA in many states in 2018. The focal areas within the infra theme are likely to be power and construction, two sectors that have the potential to outperform in the next 2-3 years.
Second, we'll see the fund playing the GST theme, which Naren believes will fully play out of the next 2-3 years. The fund's belief is that the Introduction of GST will help create a level-playing field for unorganized and organized sectors. In the process, we'll likely witness value-unlocking within sectors such as consumer durables, electronics, food services, paints, sanitary wares, and footwear; that will make the forced transition from "mostly unorganized" to "mostly organized".
End NoteSo, there you have it. If you have a high-risk sum of money that you'd like to put away for a duration of 3-4 years, ICICI Prudential Value 13 surely makes sense. For best result, consult with a qualified Financial Advisor on the best way to incorporate this fund into your overall portfolio, in line with your target asset allocation. The next three years promise to be a bumpy ride. Make sure you tighten your seat belts while committing moneys to any equity oriented investment at this stage!
