Global Scenario On Sustainable and Resilient Coconut Industry by Dr. Jelfina...
ICICI Prudential Equity Savings Fund Series 1- Presentation
1. Equity Savings Fund - Series1
NFO Period: January 20, 2014 to February 07, 2014
This product is suitable for investors who are seeking*:
• Long term wealth creation solution
• A close-ended equity scheme that seeks to generate capital appreciation by investing in Equity securities
which are specified as eligible securities for Rajiv Gandhi Equity Savings Scheme (RGESS)
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
2. Contents
1
Prelude
2
Equity Investing - Framework
3
Triggers – Short term and Long term
4
Capturing ROE Expansion
5
ICICI Prudential Equity Savings Fund - Series 1
2
3. Prelude
• We launched ICICI Prudential Value Fund - Series 1 & 2 with an aim to capture
mispriced stocks in a “polarized” market with focus on mid and small cap
segment.
• Value opportunities were available in large cap as well as in mid and small cap
segment.
• We ended up allocating more to large caps than initially anticipated (upto 40%).
• Our learning's
• Bleak macro overhang had caused even some very good quality, large cap
company stocks to be rebutted by the market
• Such companies with outlook for improving Return on Equity (ROE) are
expected to see better price appreciation
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5. Equity Investing - Framework
• MACRO INDICATORS
• Invest when GDP growth is low
• Invest when IIP is low
• Invest when Fiscal Deficit is high
• VALUATIONS
• Invest when markets are not over valued
• SENTIMENT
• Invest when investors sentiment is bad
GDP: Gross Domestic Product; IIP: Index of Industrial Production
5
6. Macro Indicators
Invest when GDP growth is low
Invest when Fiscal Deficit is high
6500
India GDP growth
Nifty
0.0
(1.0)
(2.0)
(3.0)
(4.0)
(5.0)
(6.0)
(7.0)
5500
4500
3500
2500
1500
Invest when IIP growth is low
India IIP growth
Nifty
Nifty
7000
6000
5000
4000
3000
2000
1000
0
7000
6000
5000
4000
3000
2000
1000
0
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
16.0
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0
500
Fiscal Deficit
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
10.0
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
GDP: Gross Domestic Product; IIP: Index of Industrial Production
6
7. Valuations
1.20
Market Cap to GDP Ratio
Average
1.00
0.80
0.60
0.40
0.20
0.00
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
• India's market cap to GDP indicates market valuations are below 10 year average.
Source: Bloomberg
7
8. Sentiment
India’s Allocation to various asset classes
AUM in ` Bn
Nov-13
Sep-07
Change
Equity Funds
1811.92
1578.63
14.8%
Deposits in ` Bn
29-Nov-13
28-Sep-07
Change
Aggregate Deposits of
Scheduled Commercial
Banks
74779.28
28737.35
160%
• The above table shows that domestic investors sentiment has been weak over
the past few years.
• Indian investors are massively under weight in equities as compared to other
asset classes.
Source: AMFI, RBI
8
10. Triggers - Short Term
Local Event - 2014 General Elections
GDP growth rate
USD mn
8.5%
900.00
8.0%
7.6%
7.5%
7.7%
7.0%
7.0%
6.5%
7.9%
700.00
600.00
500.00
6.8%
6.3%
6.5%
400.00
300.00
200.00
6.0%
5.5%
800.00
5.6%
5.0%
GDP Growth tends to pick up Post Elections
Source: UBS Securities, data considered for last 4 elections
100.00
0.00
-100.00
6 - 10
months
prior to
elections
5 months
prior to
elections
Election
month
5 months
post
elections
6 - 10
months
post
elections
11 - 15
months
post
elections
Foreign Institutional Inflows have been
robust after elections
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11. Triggers - Short Term
Better prepared to deal with taper now than in May
India
Russia
Korea
Taiwan
Czech Rep
Chile
Israel
Pakistan
Hong Kong
Hungary
Thailand
Mexico
Argentina
S Africa
Malaysia
Indonesia
Turkey
Brazil
China
Reducing trade surplus /
increasing trade deficit
Reducing trade deficit /
increasing trade surplus
-25
-20
-15
-10
-5
0
5
10
15
20
25
30
Change in last 5m of trade deficit over same period last year ($bn)
• CAD has shrunk to 1.2% of GDP in Q2FY14 and it is slated to slip to 2.5-3% of GDP for full FY14.
• USD 34 bn by way of FCNR deposits and bank capital has improved funding prospects of CAD.
Source: Bloomberg, CS Estimates CAD: Current Account Deficit, FCNR: Foreign Currency Non-resident
11
12. Triggers - Long Term
Inflation
poised to
ease
Interest rate
cycle can
reverse
Structural
Reforms
Investment
cycle to
pick up
Corporate
Health to
improve
Improvement in
GDP growth
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14. Why is ROE Important?
• A healthy ROE is a sign of good corporate management and efficient use of
capital
• High correlation between ROE and real GDP growth rate
• Increasing market share leads to high ROE
• Healthy margins; good financial health echoes in ROE
• ROE reflects in stock prices
• Effectively, increasing ROE means increase in shareholders’ wealth.
14
15. ROE, GDP growth and market performance
10
India real GDP growth
(% yoy, RHS)
25000
10000
14
12
3
10
20000
5000
0
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY13
FY12
FY11
FY10
FY09
FY08
FY07
FY06
FY05
FY04
Sensex ROE (%, LHS)
16
4
FY03
14.0
15000
5
16.0
18
6
18.0
20
7
20.0
22
8
22.0
24
9
24.0
Sensex ROE (%, LHS)
S&P BSE Sensex
There is a strong correlation between Sensex ROE and India’s real GDP growth rate & Sensex
movement
Source: Edelweiss Securities Ltd
15
16. ROE and Interest Rates
25
11
10
20
9
15
8
7
10
6
5
5
0
4
Sensex ROE (%, LHS)
10 year Gsec
Broad market ROE is at multi year low, and is expected to increase as the rate cycle reverses.
Source: Edelweiss Securities Ltd and Bloomberg
16
17. Relationship between ROE and Stock Prices
Increasing ROE’s and relative stock price outperformance
35
33
250
31
200
29
150
27
100
Mar04 Mar05 Mar06 Mar07 Mar08 Mar09 Mar10 Mar11 Mar12 Mar13
25
180
Price
Dr. Reddy's
160
ROE
140
120
100
80
60
40
20
0
Mar04 Mar05 Mar06 Mar07 Mar08 Mar09 Mar10 Mar11 Mar12 Mar13
40
30
20
10
0
ROE (%)
300
Price relative to Nifty
ROE
37
(Price, x)
(Price, x)
350
ITC
ROE (%)
400
-10
-20
-30
350
L&T
300
45
40
35
250
30
200
25
150
ROE
Price relative to Nifty
100
Mar04 Mar05 Mar06 Mar07 Mar08 Mar09 Mar10 Mar11 Mar12 Mar13
ROE (%)
28
26
24
22
20
18
16
14
12
10
(Price, x)
RIL
400
350
300
250
200
150
100
50
Price relative to Nifty
ROE
0
Mar04 Mar05 Mar06 Mar07 Mar08 Mar09 Mar10 Mar11 Mar12 Mar13
ROE (%)
(Re-based to 100, x)
Decreasing ROE’s and relative stock price underperformance
20
15
10
This illustration is to explain the concept of stock price movement basis the change in ROE of the Company. Actual results may vary significantly from the ones mentioned here. 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.
Source: Edelweiss Securities Ltd
17
18. Spotting the TREND
Number of companies as per ROE band for CNX100 constituents
ROE band
FY04 FY05 FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
<15
29
32
26
19
23
35
24
26
34
38
15-20
14
17
20
18
20
14
23
21
23
24
20-25
18
13
18
15
13
19
22
20
19
15
25-30
18
15
8
14
15
10
14
9
5
8
30-35
6
6
9
12
6
6
3
8
9
6
35-40
3
4
5
6
8
8
2
6
2
3
40-45
5
2
4
6
1
1
5
3
2
4
>60
3
4
4
4
6
3
3
4
2
2
Increase in number
of companies
Lesser number of
companies in this
range
Same number of
companies, more
or less. Names need
not be same
Number of companies in CNX100 with FY13 ROE lower than
FY04
62
FY07
66
• More companies now have ROE lower than 10 years back – Opportunity to do bottom fishing
Source: Motilal Oswal
18
19. Opportunities for ROE Expansion
Regulatory
Changes
Economic
Leverage
Favourable
Industry
Dynamics
Company
Specific
factors
Identifying companies where there could be turnaround based on above parameters,
leading to increase in Return on Equity (ROE)
Source: Bloomberg
19
20. Example 1 : Regulatory Issues�
MSCI Oil and Gas
28
26
24
22
20
18
16
14
12
10
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
ROE (%)
• Increase in global crude prices and depreciation of INR led to increase in under
recoveries for the Oil marketing companies.
• Deregulation of diesel prices can reduce subsidy burden and improve earnings of
PSU Oil and Gas companies.
Source: Edelweiss Securities Ltd
20
21. Example 2 : Industry Dynamics
MSCI Telecom
30
25
20
15
10
5
0
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
ROE (%)
• The telecom market in India is a highly competitive market with a number of small
regional players.
• Consolidation in the industry with smaller players reducing their presence may
lead to improvement in margins for bigger players.
Source: Edelweiss Securities Ltd
21
22. Example 3 : Economic Leverage�
30
28
26
24
22
20
18
16
14
12
10
2004
40
MSCI Industrials
MSCIIndustries
ROE (%)
2005
2006
2007
2008
2009
2010
2011
2012
2013
Global Macro
MSCI Metals
35
30
25
Domestic Macro
• Any reversal in the interest rate
cycle may lead to improvement in
the earnings for industrial sector.
ROE (%)
20
15
10
• Recovery in the global markets may
lead to increase in demand for
commodities which can improve
earnings in this sector.
5
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: Edelweiss Securities Ltd
22
23. Example 4 : Company Specific Factors
(Re-based to 100, x)
400
350
300
250
200
150
100
50
0
Mar04 Mar05 Mar06 Mar07 Mar08 Mar09 Mar10 Mar11 Mar12 Mar13
Price relative to Nifty
28
26
24
22
20
18
16
14
12
10
ROE (%)
Reliance Industries Ltd
ROE (%, RHS)
• The company has allocated capital to businesses like telecom, retail, etc. which have
not generated enough ROE in the past few years.
• Optimal allocation of capital may be beneficial for the company in the long term.
This illustration is to explain company specific factors that can impact Return on equity. It is necessary to note that the list given above is not exhaustive and there may be
other factors impacting ROE. Past performance may or may not be sustained in future. The stock mentioned above does not constitute any recommendation and ICICI
Prudential Mutual Fund/AMC may or may not have any future position in this stock.
Source: Edelweiss Securities Ltd
23
24. Factors for Improvement in ROE
MACRO FACTORS
REGULATORY FACTORS
• Stable political environment
• Deregulation of diesel prices
• Better resilience to taper and
related news
• Dividend pay outs by PSU’s
• Good
monsoon
agricultural output
supporting
• Anchored inflationary expectation
• India’s twin deficits improving
• Industry-friendly regulation in
telecom e.g. spectrum price,
license fees etc.
• Continuation of SEB reforms tariff hikes
• Stable currency
• Global recovery
SEB: State Electricity Boards
24
25. Factors for Improvement in ROE
COMPANY SPECIFIC FACTORS
• Increase in market share
• Increase in profits due to operating
leverage
INDUSTRY DYNAMICS
• Improved competitive dynamics
in the industry
• Improved margins due to better
pricing power or decreasing costs.
• Optimal capital structure
• Cheaper cost of leverage
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27. About the Fund
• A 3 year close ended fund investing in focused 20-25 stocks#
• Aims to provide long-term capital appreciation by:
• Identifying companies which are likely to see expansion in ROE over next
3 years period.
• Identifying companies which are likely to gain from improving economy, a
favourable regulatory change, change in industry dynamics or company
specific factors.
• Being adequately diversified, while not restricting itself to benchmark
sector weights.
# 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.
27
28. Investment Approach
Investable Universe
(Constituents of CNX 100, BSE 100, Maharatna, Navratna, Miniratna)
Recurring process
Data Integrity Screens
Company Characteristics
• Strong competitive edge • Sustainable market position
• Proven business model • Financial Strength • Business Durability
Valuation & Fundamental verification
Valuation Parameter
• Increasing trend in ROE • Improving B/S structure
High Conviction Portfolio (20-25 stocks)
Daily Risk control
28
29. Scheme Features
Type of scheme
A Close ended RGESS qualifying equity scheme
Investment Objective
The primary investment objective of the Scheme is to seek to generate
capital appreciation, from a portfolio that is constituted of equity securities
which are specified as eligible securities for Rajiv Gandhi Equity Savings
Scheme (RGESS). The Scheme may also invest a certain portion of its
corpus in money market instruments from time to time.
There can be no assurance that the investment objective of the Scheme will
be realized.
Options
Direct Plan – Growth and Dividend Option;
Regular Plan – Growth and Dividend Option
Minimum Application Amount
Rs 5,000 (plus in multiple of Rs.10)
Entry & Exit Load
Not Applicable
Benchmark Index
CNX 100 Index
Fund Manager
Manish Gunwani & Venkatesh Sanjeevi
29
30. What is Rajiv Gandhi Equity Savings Scheme?
Rajiv Gandhi Equity Savings Scheme or RGESS is a new equity tax
advantage savings scheme for equity investors in India, with the stated
objective of "encouraging the savings of the small investors in the
domestic capital markets." The Scheme qualifies under Rajiv Gandhi
Equity Savings Scheme (RGESS), 2012.
Note: Please refer to the RGESS, 2012 notified by the Central Government on November 23, 2012 and SEBI
Circular number CIR/ MRD/DP/32/2012 dated December 06, 2012 for additional details.
Product Labeling for ICICI Prudential Value Fund – Series 1 & 2
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
30
31. Disclaimers
All figures and other data given in this document are as on 31st December 2013 unless stated otherwise. The same may or may not be relevant at a
future date. The AMC takes no responsibility of updating any data/information in this material from time to time. The information shall not be altered
in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior
written consent of ICICI Prudential Asset Management Company Limited.
Prospective 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.
Disclaimer: In the preparation of the material contained in this document, ICICI Prudential Asset Management Company Ltd. (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.
ICICI Prudential Asset Management Company Limited (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.
Further, the information contained herein should not be construed as forecast or promise. The recipient alone shall be fully responsible/are liable for
any decision taken on this material.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
31