ICICI Prudential Value Fund-Series 1 Presentation

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ICICI Prudential Value Fund-Series 1 Presentation

  1. 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. 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
  3. 3. Why Equities now? 3
  4. 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. 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. 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. 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. 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. 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
  10. 10. Value Investing 10
  11. 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. 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. 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
  14. 14. IDENTIFYING VALUE IN THE MARKET 14
  15. 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. 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. 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. 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
  19. 19. VALUE INVESTING - GLOBALLY 19
  20. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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
  30. 30. Note 30
  31. 31. Note 31

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