Product review- Equity funds

1. Fund Review- ICICI Prudential Focused Bluechip Equity Retail
Category: Large Cap
Manager’s Benchmark: S&P CNX Nifty
Inception Date: May 23, 2008
Fund Manager: Prashant Kothari
Total Net Assets: Rs 3532.2 crore as on Dec 31, 2011
NAV: Rs 14.52 as on Dec 31, 2011

2. Fund House Pitch My Analysis
“Diversification is needed to reduce risk, but too much This fund was launched in May 2008. As we could recall that year
diversification can result in diminishing returns. Therefore, it wasn’t just the year of the bear but also the year that witnessed
makes sense to strike a balance between minimum risk and one of the most terrible bloodbaths for Global equities in our
maximum returns, which is what a focused fund does. By investing recent memory. Most market players were shying away from
in the largest companies because of an outlook that they will be equities and taking refuge in cash, gold and debt instruments. But
the most stable through any situation, it strives to grow your Prashant Kothari held a different view in those times, that he
wealth in the long run.” capitalized on irrational market behaviour and took bets with
some large caps whose prices have fallen down during the
“ICICI Prudential Focused Bluechip Equity Fund, an open-ended downturn but had promising business potential and healthy cash
equity scheme, aims to maximize long-term total returns, from a
flow position. When the market began to shown signs of recovery,
focused and optimally diversified portfolio that is invested in
equity and equity related securities of about 20 companies his portfolio was well poised to lead the charts. Since then, there
belonging to the large cap domain. This strategy has the potential has been no looking back.
to generate positive returns from being overweight on certain
high conviction stock picks.” Since 2009 not only it has beaten the benchmark in every single
calendar year but also marched ahead in the peer category. In
Investment Philosophy 2011, 2010 & 2009 it outperformed S&P CNX Nifty Index by
8.236%, 9.12% & 15.43% respectively.
This fund invests in about 20 equity and equity related securities,
and seeks to generate long term capital appreciation. The
portfolio is mandated to select stocks from among the Top 200
stocks in terms of market capitalization on the NSE. This fund
adopts a bottom-up approach to Stock Selection and the fund
manager has the flexibility to choose between stocks across all
themes, sectors and investment styles.
2011 Period
Investment Approach
Since inception of this fund, he has invested in only 36 stocks.
More often than not he takes long position with his holdings. Due
to this approach, the Portfolio turnover ratio of this fund i.e. 0.38
times is quite low compared to its peers. However if an existing
holding looks overpriced beyond a level, he doesn’t hesitate in
booking profits. Prashant follows a bottom-up and an active
approach, he looks for Industry heavy weights but doesn’t have
any sector bias as such. As quoted earlier also he looks for
companies whose business model seems promising, exhibit high
corporate governance levels and the management looks trust
worthy. He uses a combination of DCF models and relative
valuation factors such as P/BV, EV/EBITDA, P/E, and PEG to
evaluate a company’s fair value. To cite instances, in Auto space,
he favoured Bajaj over Hero Moto or Tata Motors, given Bajaj’s
cheaper valuation & better profit margins. For similar reasons his
2011 Period preference for PNB & BOB over SBI amongst Public sector banks
and Infosys over TCS in the Technology space is well justified.

3. He also has a strong dislike for highly leveraged firms, which IT sector’s new bell weather and has rather increased exposure to
explains why he has always avoided Real Estate & Infrastructure Infosys despite its subdued performance on the charts recently. In
so far. On few occasions he has also taken contrarian bets in his fact, as end of 2011 Infy held the biggest weight in the portfolio. It
has also added another Pharma names to the holdings list by
securities selection. Prashant keeps almost 5-10% of assets in
taking fresh exposure to Cadila in October month. It’s
Equity or Index Futures to maintain liquidity and at the same time undoubtedly amongst the big boys of the Industry, has had strong
maintaining equity exposure for the fund. top-line and bottom line growth last year, possess a well
diversified product portfolio besides a few promising drugs
(Generics) in the pipe line. The fund also completely sold off
Holdings Analysis Oracle Financial Services and Mahindra & Mahindra in October &
December month respectively.
As mentioned in AMC’s pitch, they do not believe in too much
diversification. The fund holds just 20 stocks comprising mostly
blue chips. As a truly active fund, the portfolio’s sector weights Security wise Portfolio breakup
remotely align with that of benchmark S&P CNX Nifty. See current
sector holdings below: Weight
(% 0f 1 Year
Company Sector Assets) Return
Infosys Ltd Technology 9.44 -19.61
RIL Energy 8.37 -34.55
Wipro Technology 6.18 -18.84
Bajaj Auto Automobile 5.96 3.27
Cipla Healthcare 5.95 -13.49
Bharti Airtel Communication 5.08 -4.26
ITC Ltd FMCG 4.98 15.26
Bank of Baroda Financial 4.85 -25.8
Hindustan Zinc Metals 4.6 -12.54
Axis Bank Financial 4.34 -40.15
ICICI Bank Financial 4.12 -40.21
Power Grid
Corp Energy 3.85 1.83
Tata Power Energy 3.74 -36.11
As end of Dec 31, 2011 Cairn India Energy 3.38 -5.56
ONGC Energy 3.18 -20.32
As evident from the above pie chart, currently almost 64% of Grasim
assets are allocated amongst Energy, Financial, Technology & Industries Diversified 3.18 6.23
Healthcare sectors. He does not hold any exposure to Real Estate
Cadila Healthcare 3.06 -8.91
and Civil Aviation sector as those firms do not qualify his quality
filters like high corporate governance level, superior management PNB Financial 2.05 -36.1
structure and low leverage. As of Dec 2011, Equity & Index futures HDFC Bank Financial 1.44 -9.04
accounted for 5.19% of the portfolio & Cash levels stood at 5.64%. BHEL Engineering 1.42 -48.61
Prashant’s high-risk specialized/concentrated strategy has paid off As end of Dec 31, 2011
investors so far. But it has also missed a couple of Sector rallies
like Metal’s bull run in 2009. BSE Metal index delivered 233.68 %
in 2009. Likewise the recovery of Tata Motors since 2008 has been Performance Analysis
phenomenal, it has given 70.26% return annually over last four
As its name suggests, the scheme focuses on some of the finest
years period. Unfortunately the Fund Manager failed to capitalize
Industry heavy weights and thus has reaped the benefits of
on that true fairy tale instance. Inclusion of Idea in
stupendous recovery seen in the large-cap space after the market
Communications & HUL in the FMCG category would have
meltdown in 2008. Having acquired most of its equity investments
boosted Portfolio’s returns significantly in 2011 period as both
at discounted rates in the second half of 2008, ICICI Prudential
yielded 18.33% and 30.20% respectively for the calendar year. His
Focused Bluechip Equity delivered 91% returns in 2009 as against
conviction for BHEL & ICICI Bank has not gone well for 2011
76% returns by its benchmark S&P CNX Nifty. It has consistently
calendar as they were down by 48.61% & 40.21% respectively.
beaten the benchmark in the last 3 years. Though being relatively
However both these stocks will surely cheer up long term
new, it has eclipsed the performance of some of Industry’s best
investors as ICICI bank is expected to post strong Q3 numbers on
performing old names like HDFC Top 200, Franklin India Bluechip,
the back of business recovery, improvement in NIMs & low
DSP BR Top 100 etc. No wonder why it was awarded with CRISIL
exposure to Telecom & Aviation firms whereas BHEL enjoys near
number one ranking in Open End Large cap Equity schemes
monopoly position in Capital Goods/Engineering space, it has
category. It also commands 5 star ranking from both Morningstar
strong order book and also hold high cash levels.
& Value Research. It’s AUM has grown from Rs 1658.17 crore in
the beginning of 2011 to a massive size of Rs 3532.16 crore as end
A tour through Portfolio holdings throughout 2011 suggests that of 2011, thereby clocking a growth of 113% in just one year. All
Fund Manager has a quality bias, he prefers value (margins) over these factors reflect an impressive track record for the fund.
volumes. In September, the Fund made an exit from TCS which is

4. Period Fund Nifty Sensex BSE 100 MSCI India
1M -3.01 -4.3 -4.15 -4.83 -4.38
6M -12.95 -18.12 -17.99 -19.13 -18.9
1Y -16.41 -24.62 -24.64 -25.73 -26.33
2 Y (Ann) 3.06 -5.71 -5.93 -7.32 -8.06
3 Y (Ann) 26.63 16.04 17.01 16.7 17.42
Period- Jan 1, 2009 till Dec 31, 2011
Top 5 Performing Constituents
Company Sector Contribution
ITC Ltd FMCG 0.76
Grasim Industries Diversified 0.20
Bajaj Auto Automobile 0.19 Since inception till Dec 31, 2011. Base taken as 10.
Power Grid Corp Energy 0.07
HDFC Bank Financial -0.13 Other Quantitative Indicators
Bottom 5 Performing Constituents Average P/E: 17.79
Average P/BV: 3.38
Company Sector Contribution Average Dividend Yield: 1.69
RIL Energy -2.89 Average Portfolio Turnover Ratio: 0.38 times
Infosys Ltd Technology -1.85 Std Dev (Annualised): 22.82%
Axis Bank Financial -1.74 Sharpe Ratio: 0.78
ICICI Bank Financial -1.66 Portfolio Beta: 0.85
Tata Power Energy -1.35 R Squared: 0.97
As end of Dec 31, 2011 Annual Management Fee: 1.25%
Total Expense ratio: 2.10%
Relative Performance
 Portfolio turnover has been computed as the ratio of the lower
value of average purchase and average sales, to the average
Out/Under
Date Fund Benchmark Performance net assets in the past one year.
Jan-11 -8.52 -10.25 1.73  Risk-free rate based on the last 91-day T-Bill cut-off of
Feb-11 -2.96 -3.14 0.18 8.4782%.
Mar-11 9.73 9.38 0.34
Apr-11 -0.65 -1.44 0.79 Bottom-line for investors
May-11 -2.86 -3.29 0.44
Jun-11 2.14 1.57 0.57 The fund’s opportunistic investment in fundamentally sound
Jul-11 -0.84 -2.93 2.09 companies from attractive sectors has paid off investors really
Aug-11 -8.52 -8.77 0.25 well. Its investment rationale is tilted towards large cap-growth
Sep-11 -0.07 -1.15 1.09 flavour and committed to long term capital appreciation from
Oct-11 6.55 7.76 -1.21 investments in handpicked blue chip stocks across various sectors.
Nov-11 -7.08 -9.28 2.21 The fund has outperformed the broader indices by fairly good
Dec-11 -3.01 -4.30 1.29 margins historically. Do consider this ‘aggressive large cap open-
1 Year Period -16.41 -24.62 8.21 ended fund’ while evaluating various mutual funds for your Equity
In 2011, except for October month, the fund has always given fund portfolio and SIP your way to achieve long term goals.
positive relative return over its benchmark. Those were extremely Always remember that the fund has highly concentrated portfolio,
volatile period for the broader markets. Even if we go beyond last so new investors with high-risk quotient can consider investing in
year, the fund has beaten both benchmark and category average the scheme with a long term investment horizon.
across various market cycles in last three years.
Disclaimer- Due diligence has been exercised in checking the authenticity of all figures mentioned in this report. But that does not
guarantee its accuracy or completeness. The recipient of this material should rely on his/her own judgment and take prudent decision
before acting on the above piece of information.
06-Feb-2012, © Saurabh 2011 (Saurabh Kumar|kaashyap.saurabh@gmail.com|+91-8374109195)