Analyst Review: ICICI Pru Long Term Equity

Apr 25, 2023

ICICI Prudential Long Term Equity has passed through multiple hands and now resides with Harish Bihani at the helm. Despite the frequent change in managers, the fund is worth considering.

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Why the fund gets a Neutral Rating

Harish joined ICICI Prudential Mutual Fund in November 2018. Initially, he started off as co-manager for this fund along with chief investment officer Sankaren Naren. He took over as lead manager in May 2020.

While Harish is vastly experienced as a research analyst, this is his first stint as a fund manager with a large-cap bias approach and therefore we need some time before we build conviction on him and his execution capability.

Having said that, we draw conviction from Naren’s presence at the helm of the investment function. He works closely with the investment team, and his contribution gives the team an edge.

A thorough research-backed process complemented with a large, experienced and stable team are the positives aspects of the fund.

Hence, we assign a Morningstar Analyst Rating of Neutral to both the Regular as well as the Direct plans.

What the Morningstar Fund Rating indicates

How he constructs his portfolio

Bihani relies primarily on his bottom-up stock-picking skills along with an investment framework that he has built based on theme, fundamental metrices and bucket strategy approach. This helps him create a well-diversified portfolio.

Bihani breaks his entire investment universe into three buckets.

  • Bucket A: Companies with a proven and stable business model, run by a competent leader, are market share gainers, and have good growth prospects over the next three to four years.
  • Bucket B: Companies where the current earnings are below normal, but the management has a sound plan for earnings recovery.
  • Bucket C: Companies which the manager approaches with tremendous caution or avoids altogether. Those with weak balance sheets and cash flows, fragile business models, and exposed to macro risks are placed here.

Bihani avoids taking big calls based on the macro environment or on markets unless he believes that the market is over-heated.

While Bihani is mindful of valuations, he wouldn't mind paying a premium for a company as long the numbers meet his growth criteria. Bihani is not benchmark-agnostic when it comes to investing. But there is an internal risk committee which looks at the sector allocation relative to the benchmark on a regular basis.

Bihani has also laid down a detailed and active review framework for his portfolio to ensure that his investments don't breach his selection criteria. It's a well laid down process with various yet significant elements attached.

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How the fund has performed

Despite the frequent change in managers, the performance of the fund has been pleasing over various time frames especially over long term. While over a 1-year period, the fund’s regular plan is among the third quartile, over a longer timeframe (3, 5 and 10 years) the fund is among the second quartile.

Bihani's framework of investing in quality established businesses and avoiding short-term trends should ensure that the fund does well over a full business cycle. The fund has the potential to perform well not only during broad based equity rallies and bull markets but also when value style starts to outperform growth style. That said, during phases of polarized bull markets when momentum is outperforming value, this strategy may find it difficult to beat the benchmark.

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Read the Analyst Note

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