Mrinal Singh, fund manager, ICICI Pru Value Discovery, talks about the several parameters they use to select stocks for their portfolio.
What is your investment universe?
ICICI Prudential Value Discovery Fund is distinctively positioned as a value fund in the industry, having a track record of a decade. The scheme follows the classic principles of value investing to buy fundamentally well-managed companies at discount to their intrinsic value. The scheme focuses on selecting value stocks that are likely to transform into tomorrow's market leaders resulting in potential capital appreciation over time.
We may also resort to contra investing strategy which involves selection of stocks that are out of favour at a certain point but have the potential to do well over time owing to factors such as strong fundamentals, future turnaround in the business cycle and revival in economic growth.
What attributes should a stock have for it to become a part of your portfolio?
While investing in companies, we use several parameters like primary research, bottom-up rigour and meetings with company management. The scheme, through its process of discovery, seeks to identify stocks whose prices are lower, relative to their historic performance, earnings, book value and cash flow potential.
What kind of stocks never enter your portfolio?
We would steer clear of stocks/sectors which are not offering reasonable value over the long-term. A broad framework for stocks that could never enter the portfolio would be based on the promoter's background. For instance, we are uncomfortable investing in companies, where the minority interest doesn't get taken care off well.
What will you attribute the relatively superior performance of your fund to in recent years?
The fund has performed across various market phases as it was able to generate returns over the benchmark in bull as well as bear market phases due to a blend of top-down approach and robust bottom-up rigour. Fund's overweight exposure to software, auto and auto ancillaries sectors helped it outperform the benchmark in the past few years. In 2012- 2013, the fund increased exposure to exports theme and rode out the subsequent rally reasonably well. Avoiding the banking sector in 2013 also played out in favour. In the last one year, the fund has been overweight on domestic cyclical sectors. With India on the road to economic revival, these sectors have aided the performance of the fund.
Is there any tactical miss you regret (for instance, not owning a stock or not owning enough of it)?
We have remained underweight on FMCG sector due to overvaluations. Despite rich valuations, a significant Price to Earnings expansion took place in these companies. Consequently, the fund missed the rally in these high quality FMCG/Consumer companies.
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