AMFI Registered Mutual Fund Distributor | SEBI registered Investment Adviser
                Fundsupermart.com | Global   
SEARCH 
  Need Investment Help?
Talk To Us.
  *   
  *   
  *   
 
Research
   SUBSCRIBE TO E-NEWSLETTER
Subscribe
Share |
  Email
Print
more
ICICI Prudential Discovery Fund: A value proposition November 21, 2012
ICICI Prudential Discovery is one of the best value funds on our platform. We analyze what makes it such a good pick.
Author : iFAST Research


ICICI Prudential Discovery Fund

Key Points:

  1. ICICI Prudential Discovery Fund is one of the best performing value funds on our platform

  2. The fund follows a buy-and-hold strategy when scouting for value picks

  3. Consistent track record during all market phases

  4. Investors with a risk appetite for mid caps and the patience to wait for the value picks to play out may opt for this fund

INTRODUCTION

While fund managers across the globe pursue growth and value style investing strategies, in India the former is often preferred with country touted as a growth story.

Value investing is often confused with buying cheap or buying at low prices. In actuality, it refers to buying fundamentally strong stocks which have the potential for future earnings yet are relatively cheaper to their intrinsic value. This strategy works well in times of uncertainty.

Indian economy has been going through a difficult phase for a while. Policy inaction impacted the economy negatively as the government grappled with corruption scandals and put reforms on the backseat. The uncertain global environment did not help either.

A change of guard in the Finance Ministry indicated that the government is serious about reforms before the elections in 2014. A slew of announcements threw a ray of hope by way of hiking of diesel prices and permitting FDI in retail and civil aviation. On the back of announcements of such fast-track reforms, North Block worked overtime to announce the Fiscal Consolidation Plan for the country, the implementation of which is awaited by the market. On the monetary side, Subbarao and team are all set to soften their monetary stance as soon as inflation starts showing a downward trend.

Against this backdrop, the Indian market has been one of the best performers in comparison to its global peers in terms of year-to-date (YTD) returns. Despite all the gloom pervasive domestically and internationally, the biggest attraction for investors to take an exposure to our market has been the attractive valuations.

We at Fundsupermart.com reiterate our stance taken during this volatile phase that investors should start taking an exposure to the market in a staggered manner. In accordance with this view, we advise investors to allocate at least 5% of their portfolio to value funds which do best when the market is range bound. Our focus in this space is “ICICI Prudential Discovery Fund” which has been in our recommended funds’ list since December 2009. This fund has been around for 8 years and has seen different market cycles. In the domestic mutual fund industry, where most the funds chase the growth story, ICICI Prudential Discovery Fund stands apart with a thrust on value investing. Sankaran Naren, known to have a keen eye for detail when hunting for picks, handed over the reins to Mrinal Singh in February 2011.

Investing Strategy

The fund’s strategy is to identify potential stocks trading at a discount to their fair value. This refers to stocks whose prices are low in relation to fundamentals, historic performance, book values, earnings and cash flow potential and current or future dividends. The investment decision is based on numerous factors such as P/E ratio, management competitiveness, business competitiveness and growth prospects.

On an average, over the past 3 years, the exposure has been 42% to large caps and 50% to mid and small caps. Though the balance is allocated to cash and debt, the fund seldom takes cash calls and has a penchant to stay invested at all times.

The buy-and-hold strategy, an important criterion in value investing, has been very evident in this portfolio where the average holding period of stocks is over 12 months. In fact, some of the stocks in the fund’s portfolio have been held for as long as 7 years. Vardhman Textiles Ltd, FDC Ltd, MM Forgings Ltd, Kirloskar Ferrous Industries and eClerx Services Ltd are some of the picks featuring in the portfolio for a minimum 5 years.

Discussions with the fund management team reveal that if the stock is relatively cheap vis-à-vis its peers, it will find an entry into this portfolio. Amara Raja Batteries Ltd, Balkrishna Industries Ltd, Aurobindo Pharma Ltd and Natco Pharma Ltd are cases in point. And stocks in the portfolio trading above their intrinsic value are continued to be held on to.

Ever since its launch, the fund has shown a strong preference to sectors such as Auto Ancillary (average exposure: 5%), Banking (11%), Consumer Non Durables (7%) and Pharmaceuticals (10%). Some of the favorite mid-cap stocks held are FDC Ltd and Natco Pharma Ltd (Pharmaceuticals), Standard Chartered PLC and Corporation Bank (Banking), and Amara Raja Batteries Ltd and India Nippon Electricals Ltd (Auto Ancillary). On the other hand, exposure to Construction and Finance has been minimal with an average exposure of 1%.

The fund manager is of the view that sectors like Banking and Auto Ancillary are expected to benefit in the near future when the central bank starts to cut policy rates. He also believes that Pharmaceuticals has great potential due to the huge generics industry thriving in India which in turn throws up huge export possibilities in terms of generics.

PERFORMANCE

The performance of ICICI Prudential Discovery Fund has been quite impressive. Over a 3-5 year time horizon, the fund has beaten its benchmark CNX Midcap by a margin of 8.9% and 10.3%, respectively. The fund has achieved this consistent performance by containing its fall during market downtrends without disappointing during market run-ups.

Chart 1: Performance across different market phases

ICICI_DISCOVERY_C1

Chart 2: Relative Performance against benchmark and Sensex

ICICI_DISC_C2

The graph indicates that an investment of Rs 10,000 in ICICI Prudential Discovery Fund on November 2, 2007 would appreciate to Rs 17,231 over a period of 5 years. Identical investments in the CNX Midcap and Sensex would have appreciated/decelerated to Rs 10,611 and Rs 9,389, respectively

OUR TAKE ON THE FUND

ICICI Prudential Discovery Fund, a value fund with a mid-cap bent, has been a consistent performer during all market phases. The value investing approach has helped the management team limit the downside risks. Investors who have the patience to wait till the stocks in the portfolio unlock their value can consider an exposure to this fund. The time horizon we would consider for an investment in this fund is 3 years

DETAILS

Investment Objective

To generate returns through a combination of dividend income and capital appreciation by investing primarily in a well-diversified portfolio of value stocks

Inception Date

16th August 2004

Benchmark Index

CNX Midcap

Fund Manager

Mrinal Singh

AUM (as on Sep 30, 2012)

Rs 1,985.21

Entry Load

NIL

Exit Load

3% (up to 6 months from allotment) or 2% (between 6 & 18 months from allotment) of applicable NAV; more than 18 months – Nil

To invest into this fund, click here


Disclaimer: iFAST and/or its content and research team’s licensed representatives may own or have positions in the mutual funds of any of the Asset Management Company mentioned or referred to in the article, and may from time to time add or dispose of, or be materially interested in any such. This article is not to be construed as an offer or solicitation for the subscription, purchase or sale of any mutual fund. No investment decision should be taken without first viewing a mutual fund's scheme information document including statement of additional information. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Investors should seek for professional investment, tax, and legal advice before making an investment or any other decision. Past performance and any forecast is not necessarily indicative of the future or likely performance of the mutual fund. The value of mutual funds and the income from them may fall as well as rise. Opinions expressed herein are subject to change without notice. Please read our disclaimer on the website.Please read our disclaimer in the website. Risk Factors: Mutual funds, like securities investments, are subject to market risks and there is no guarantee against loss in the Scheme or that the Scheme’s objectives will be achieved. As with any investment in securities, the NAV of the Units issued under the Scheme can go up or down depending on various factors and forces affecting capital markets. Past performance of the Sponsor/the AMC/the Mutual Fund does not indicate the future performance of the Scheme. The name of the Scheme does not in any manner indicate the quality of the Scheme, its future prospects or returns. Please read the Statement of Additional Information and Scheme Information Document carefully before investing.


 


Comments (0) | Comment on this Article
 (Click on Comments/Comment on this Article to show or hide comments/post a comment)
USEFUL LINKS
Recommended Funds
Recommended Portfolios
Chart Centre
Risk Profiler

<%@ page import="com.fin.common.web.util.*"%> <%@ page pageEncoding="UTF-8" %> <%@page import="com.fin.common.manager.fund.FundManager"%> <%@page import="com.fin.common.dao.fund.FundInfoBean"%> <%@ include file= "pageTitle.jsp" %> <% I18NSession i18n = I18NSession.getI18NSession(session); boolean onLoadScript=false; // defining the default pages for the template if (main==null || main.equals("")) main="main.jsp"; if (header==null || header.equals("")) header="header.jsp"; if (footer==null || footer.equals("")) footer="footer.jsp"; if (leftBar==null || leftBar.equals("")) leftBar="leftBar.jsp"; if (leftBar2==null || leftBar2.equals("")) leftBar2=""; if (body_onload==null || body_onload.equals("")) body_onload=""; else { if (E2EEUtil.isE2EEStatusActiveFSM()) { onLoadScript = true; if (body_onload.lastIndexOf("/")!=-1) body_onload = body_onload.substring(body_onload.lastIndexOf("/")+1,body_onload.length()); body_onload = "javascript:"+body_onload+"()"; } } //System.out.println("Leftbar *******"+leftBar); Boolean isSecure = (Boolean)request.getAttribute("common.template.isSecure"); if ( isSecure == null ) isSecure = new Boolean(false); // Default secure = off %> <% String requestedURL = request.getAttribute("javax.servlet.forward.request_uri").toString(); %> <% if (request.getAttribute("article")!=null) { com.fin.common.dao.content.Article1Bean article = (com.fin.common.dao.content.Article1Bean)(request.getAttribute("article")); String Articleurl="http://www.fundsupermart.co.in/main/research/viewHTML.tpl?articleNo=" + article.getArticleno(); %> Fundsupermart.com -<%=article.getTitle()%> <% }else if(request.getParameter("sedolnumber")!=null && !"".equalsIgnoreCase(request.getParameter("sedolnumber").toString().trim()) ){%> <% FundManager fm = new FundManager(); FundInfoBean fundinfoBean1=fm.loadFundInfo(request.getParameter("sedolnumber").toString().trim()); %> fundsupermart.com -<%=fundinfoBean1.getFundName() %> <% }else if(strPageTitle!=null && !"".equals(strPageTitle)){ %> <%=strPageTitle %> <% }else{ %> fundsupermart.com -<%=ProjectProperty.get("common.tagline")%>|<%=ProjectProperty.get("common.taglineExt")%> <% } %> <% if(requestedURL!=null && ProjectProperty.get("fsm.metatag.main.school.gettingStarted")!=null && ProjectProperty.get("fsm.metatag.main.school.gettingStarted").toString().indexOf(requestedURL)!=-1){ %> <% if(request.getParameter("PageID")!=null && request.getParameter("PageID").toString().equalsIgnoreCase("1")){ %> <% }else if(request.getParameter("PageID")!=null && request.getParameter("PageID").toString().equalsIgnoreCase("2")){ %> <% }else if(request.getParameter("PageID")!=null && request.getParameter("PageID").toString().equalsIgnoreCase("3")){ %> <% }else if(request.getParameter("PageID")!=null && request.getParameter("PageID").toString().equalsIgnoreCase("4")){ %> <% } %> <% }else if(requestedURL!=null && ProjectProperty.get("fsm.metatag.main.school.basics")!=null && ProjectProperty.get("fsm.metatag.main.school.basics").toString().indexOf(requestedURL)!=-1){ %> <% if(request.getParameter("PageID")!=null && request.getParameter("PageID").toString().equalsIgnoreCase("1")){ %> <% }else if(request.getParameter("PageID")!=null && request.getParameter("PageID").toString().equalsIgnoreCase("2")){ %> <% }else if(request.getParameter("PageID")!=null && request.getParameter("PageID").toString().equalsIgnoreCase("3")){ %> <% }else if(request.getParameter("PageID")!=null && request.getParameter("PageID").toString().equalsIgnoreCase("4")){ %> <% }else if(request.getParameter("PageID")!=null && request.getParameter("PageID").toString().equalsIgnoreCase("5")){ %> <% }else if(request.getParameter("PageID")!=null && request.getParameter("PageID").toString().equalsIgnoreCase("6")){ %> <% } %> <% }else if(requestedURL!=null && ProjectProperty.get("fsm.metatag.main.school.investing")!=null && ProjectProperty.get("fsm.metatag.main.school.investing").toString().indexOf(requestedURL)!=-1){ %> <% if(request.getParameter("PageID")!=null && request.getParameter("PageID").toString().equalsIgnoreCase("1")){ %> <% }else if(request.getParameter("PageID")!=null && request.getParameter("PageID").toString().equalsIgnoreCase("2")){ %> <% }else if(request.getParameter("PageID")!=null && request.getParameter("PageID").toString().equalsIgnoreCase("3")){ %> <% }else if(request.getParameter("PageID")!=null && request.getParameter("PageID").toString().equalsIgnoreCase("4")){ %> <% }else if(request.getParameter("PageID")!=null && request.getParameter("PageID").toString().equalsIgnoreCase("5")){ %> <% }else if(request.getParameter("PageID")!=null && request.getParameter("PageID").toString().equalsIgnoreCase("6")){ %> <% }else if(request.getParameter("PageID")!=null && request.getParameter("PageID").toString().equalsIgnoreCase("7")){ %> <% }else if(request.getParameter("PageID")!=null && request.getParameter("PageID").toString().equalsIgnoreCase("8")){ %> <% }else if(request.getParameter("PageID")!=null && request.getParameter("PageID").toString().equalsIgnoreCase("9")){ %> <% }else if(request.getParameter("PageID")!=null && request.getParameter("PageID").toString().equalsIgnoreCase("10")){ %> <% }else if(request.getParameter("PageID")!=null && request.getParameter("PageID").toString().equalsIgnoreCase("11")){ %> <% } %> <% }else if(requestedURL!=null && ProjectProperty.get("fsm.metatag.main.school.financialPlanning")!=null && ProjectProperty.get("fsm.metatag.main.school.financialPlanning").toString().indexOf(requestedURL)!=-1){ %> <% if(request.getParameter("PageID")!=null && request.getParameter("PageID").toString().equalsIgnoreCase("2")){ %> <% }else if(request.getParameter("PageID")!=null && request.getParameter("PageID").toString().equalsIgnoreCase("3")){ %> <% }else if(request.getParameter("PageID")!=null && request.getParameter("PageID").toString().equalsIgnoreCase("4")){ %> <% }else if(request.getParameter("PageID")!=null && request.getParameter("PageID").toString().equalsIgnoreCase("5")){ %> <% }else if(request.getParameter("PageID")!=null && request.getParameter("PageID").toString().equalsIgnoreCase("7")){ %> <% }else if(request.getParameter("PageID")==null || (request.getParameter("PageID")!=null && request.getParameter("PageID").toString().equalsIgnoreCase("")) ){ %> <% }else if(request.getParameter("PageID")!=null && request.getParameter("PageID").toString().equalsIgnoreCase("10")){ %> <% }else if(request.getParameter("PageID")!=null && request.getParameter("PageID").toString().equalsIgnoreCase("12")){ %> <% } %> <% }else if(requestedURL!=null && ProjectProperty.get("fsm.metatag.main.research.listArticles")!=null && ProjectProperty.get("fsm.metatag.main.research.listArticles").toString().indexOf(requestedURL)!=-1){%> <% if(request.getParameter("categoryid")!=null && !request.getParameter("categoryid").toString().equalsIgnoreCase("") && request.getParameter("categoryid").toString().equalsIgnoreCase("17")){ %> <% }else if(request.getParameter("categoryid")!=null && !request.getParameter("categoryid").toString().equalsIgnoreCase("") && request.getParameter("categoryid").toString().equalsIgnoreCase("26")){ %> <% } %> <% }else if(requestedURL!=null && ProjectProperty.get("fsm.metatag.main.research.viewHTML")!=null && ProjectProperty.get("fsm.metatag.main.research.viewHTML").toString().indexOf(requestedURL)!=-1){%> <% if(request.getParameter("articleNo")!=null && !request.getParameter("articleNo").toString().equalsIgnoreCase("") && request.getParameter("articleNo").toString().equalsIgnoreCase("149")){ %>