We recently analysed ICICI Prudential Top 100 and ICICI Prudential Dynamic and assigned a Silver rating to each. Both funds are excellent performers and managed by Sankaran Naren.
Naren evaluates sectors from a top-down perspective, favouring those with attractive fundamentals and shifting away from ones where he thinks valuations are stretched. He studies factors such as fiscal policy, current account deficits, inflation, economic growth rate, and government policies to form his top-down views. He also keeps an eye on the global economic environment while investing in sectors such as metals, where international factors have a significant bearing on domestic prices.
Within the chosen sectors, Naren makes use of relative valuation parameters to invest in large-cap stocks he believes are attractively priced relative to their growth prospects. While picking stocks, he focusses on the financial strength of the company and knocks out stocks with high leverage.
According to senior fund analyst Nehal Meshram, “Naren has a value orientation and focuses on stocks that have significant long-term growth potential. The approach of regular profit booking and rebalancing of the portfolio has helped him buy equities at low valuations and sell at high valuations.”
In that sense, both the fund share common ground. But it is their individual investment mandate that sets them apart. While Top 100 is a focused large-cap fund, Top 100 is a sort of go-anywhere fund. The fund manager can shift the entire portfolio into equity or drop the equity exposure to nothing. Dynamic is not as concentrated as Top 100, and the latter refrains from cash calls.
ICICI Prudential Top 100
As the name suggests, the portfolio sports a large-cap bias, a fairly concentrated portfolio with around 50% of the allocation cornered by the top 10 stocks.
As against a typical peer in its category that can roughly invest up to 30% of its assets in mid- and small-cap stocks, this fund is run as a pure-play large-cap offering where usually around 90% of the assets are in the large-cap segment (in the December portfolio it stood at around 80%).
Naren can trade aggressively and rapidly enter/exit stocks, and simultaneously buy and sell stocks from the same sector based on relative valuations. For instance, in 2016 within the IT sector, he exited Infosys with its stock price running up and at the same time increased allocation to Cognizant.
You can read the analyst note on ICICI Pru Top 100 here.
ICICI Prudential Dynamic
The fund manager aggressively trades large caps based on relative valuations, but with small/midcaps he tends to have a longer investment horizon.
The fund’s deeper-value profile and heavy contrarian bets drags the portfolio away from that of both the CNX Nifty Index and its peers. Even though he typically keeps higher cash, the fund has delivered impressive returns during his tenure.
From a sector standpoint, he has significant underweightings in a few but tends to look for global stocks within the space. However, while doing so he includes companies that sell products in India. He had been underweight in consumer and auto for a while but bought into Skechers USA and Honda.
Naren follows an aggressive contrarian strategy and is willing to buy companies that are in the midst of a short-term crisis or transition but remain fundamentally sound. Though taking cash calls is integral to the strategy, recently the fund has been conservatively managed by not taking high cash exposure in the past few years.
You can read the analyst note on ICICI Pru Dynamic here.