ICICI Pru Banking & Financial Services Fund analysis

1. RETAIL RESEARCH
ICICI Pru Banking & Financial Services Fund
RETAIL RESEARCH
Nov 10, 2015
Mutual Fund Scheme Analysis

2. RETAIL RESEARCH
Unit Growth of investments Vs. Benchmark: (Rebased to 100)
Fund Performance Vis-a-vis Benchmark (Excess return):
Key Points
ICICI Pru Banking & Financial Services Fund is one of the flagship schemes from Equity sector – Banking
category. Equity sector – Banking category invests predominantly in the banking sector stocks including
public and private sector banks and financial institutions.
ICICI Pru Banking & Financial Services Fund has showed consistently better performance over periods
thanks to the fund manager’s efficiency on positioning the stocks from the banking sector that work well
during all the phases irrespective of the market cycles notwithstanding the fact that the banking stocks
are high beta stocks and react more sensitively to the short term turmoil that are seen in the macro side
on the economy.
The scheme registered +6%, 20% and +10% of CAGR returns for one, three and five year periods while the
benchmark – S&P BSE Bankex posted +0.3%, 14% and 6% of returns respectively. For the same period, the
category clocked +2%, +13% and +5% of returns respectively.
Banking industry is one of the key drivers of a nation’s economy and its growth is dependent on the
overall growth in the economy. It plays a significant role in the development of trade, commerce and
industry of a nation.
The banking sector in India stands on strong foundations of prudent policy framework laid by the
regulators. This excellence has been proved in a scenario where the Indian banking industry managed to
overcome all the headwinds from the global financial turmoil when the U.S sub-prime mortgage crisis
occurred which resulted in bankruptcy and/or writing-off debt by some of well-known global banks.
Since the performance of the banking sector relies mostly on the overall growth in the economy, the
efficient policy actions taken by the regulator and the government to pave the way to the sustainable
growth of the domestic economy which would result in appreciation in the prices of the banking stocks.
The Reserve Bank of India has been on the path of initiating innovative measures for the betterment of
the banking industry. Some of the proactive measures taken by the RBI in the recent periods are worth
mentioning here such as in-principle approval given to 11 applicants to establish payment banks, allowing
third-party white label automated teller machines (ATM) to accept international cards, allowing Indian
alternative investment funds (AIFs) to invest abroad, flexible refinancing and repayment option for long-
term infrastructure projects in order to increase the investment opportunities, been signed an MoU with
European Central Bank on cooperation in central banking, allowing bonds issued by multilateral financial
institutions like World Bank Group, the Asian Development Bank and the African Development Bank in
India as eligible securities for interbank borrowing, allowing companies to issue overseas rupee
denominated bonds to provide additional source of funding, etc.

3. RETAIL RESEARCH
On government side, there are various reforms undertaken by the central government including an announcement of a capital infusion of Rs 6,990 crore (US$ 1.05 billion) in nine state run banks,
launching of Credit Guarantee Fund Scheme to provide guarantee cover for collateral free credit facilities upto Rs 1 Crore (US$ 0.15 million) for financing Micro and Small Enterprises (MSEs), a draft
proposals to encourage electronic transactions, including income tax benefits for payments made through debit or credit cards, an establishment of the US$ 100 billion New Development Bank (NDB)
envisaged by the five-member BRICS group, etc.
Going forward, there are positive business sentiments, improved consumer confidence, more controlled inflation, enhanced spending on infrastructure, speedy implementation of projects and
continuation of reforms are likely to prop-up the domestic economic growth. Hence, with the decline in interest rates, gradual improvement in macros and the government’s efforts towards resolving
issues related to the sector are expected to provide further impetus to growth would suggest the rapid growth of India’s banking sector.
It is worth noting that, like other Sector funds, banking sector funds are also high risk – high return funds. Concentrated investment approach makes these funds more risky than diversified equity
oriented funds. Banks as a sector is a high beta sector; in the sense that it rises and falls more than the broader markets.
Performance: As a category, the Banking sector showed above average returns in the recent periods but posted relatively better returns over periods. However, the performance of the ICICI Pru
Banking & Fin Serv fund has been commendable as it outperformed all the peers, benchmarks and overall equity diversified category. Considering the performance during various cycles, the Banking
category posted outperforming returns during all bull runs but posted underperforming returns during bear runs. Seeing the performance of the schemes in the category on various cycles, all the top
schemes showed almost similar returns.
Portfolio: The scheme prefers to allocate maximum assets into the stocks that belong to the private sector banks (59% as per the latest portfolio). HDFC Bank, ICICI Bank and IndusInd Bank are the
stocks that topped in its latest portfolio having weights of 15.7%, 10.4% and 10% to its net assets respectively. In the last six month period, the scheme added three new stocks and exited from one. The
Turnover ratio of the scheme stood at 39%.
The expense ratio of 2.67% for the scheme is lower compared to the category average of 2.82%. The corpus of the scheme as per latest data (Sep 2015) was at Rs. 884 crore. The scheme is managed
jointly by Mr. Vinay Sharma since Feb 2015.
As far as risk measures are concerned, the scheme seems to be high risky while compared to peers as it generated 24% (category 23.5%) of Annualized Standard Deviation that generated for last 3 years
period.
Relatively better performing schemes from Equity – Banking Category:
Scheme Name
Inception
Date
Benchmark
Latest
Corpus
(Rs
Crs)
Expense
Ratio
(%)
Trailing Returns (%) Rolling Returns (%)
Standard
Deviation
(Annualized)
Exit Load
1 Year
CAGR
3 Years
CAGR
5 Years
CAGR
7 Years
CAGR
6
Months
Absolute
1 Year
CAGR
2 Years
CAGR
3 Years
CAGR
ICICI Pru Banking & Financial Serv (G) Aug-08 BSE BANKEX 903 2.67 5.56 19.82 10.43 22.62 14.61 30.26 21.80 18.42 24.06 1.00% on or before 1Y
Reliance Banking Fund - (G) May-03 Bank Nifty 2129 2.34 3.48 16.1 6.35 22.32 12.50 24.51 19.14 18.88 26.24 1.00% on or before 1Y
Religare Invesco Banking Fund (G) Jul-08 Bank Nifty 83 2.9 7.67 14.8 6.42 19.39 12.39 26.88 18.94 15.24 23.71 1.00% on or before 1Y
Benchmark:
Bank Nifty 0.51 14.51 5.49 18.58 10.97 20.44 14.09 14.17
S&P BSE BANKEX 0.34 14.28 5.61 19.22 11.20 20.79 13.86 13.53
CNX NIFTY -3.4 12.14 5.06 14.36 6.55 11.66 8.64 8.59
Note: NAV Value as on Nov 04, 2015.

4. RETAIL RESEARCH
Market Cap Break up:
Riskometer:
Top 10 stocks as per the latest portfolio:
Top sectors exposure during the last one year period:

5. RETAIL RESEARCH
Point to point returns performance:
Equity – Banking category Vs. Other Equity oriented categories:
During various market cycles:
Risk as measured by the Standard Deviation (Annualized):

6. RETAIL RESEARCH
Indices performance:
Year on year performance of the major Sectors and Thematic indices over the last 10 years period:

7. RETAIL RESEARCH
Analyst: Dhuraivel Gunasekaran.
RETAIL RESEARCH Tel: (022) 3075 3400 Fax: (022) 2496 5066 Corporate Office
HDFC securities Limited, I Think Techno Campus, Building - B, "Alpha", Office Floor 8, Near Kanjurmarg Station, Opp. Crompton Greaves, Kanjurmarg (East), Mumbai 400 042 Phone: (022) 3075 3400 Fax: (022) 2496 5066 Website: www.hdfcsec.com Email:
hdfcsecretailresearch@hdfcsec.com
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(Institutional, PCG) of HDFC Securities Ltd.