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Dileep Madgavkar on his Strategy for Pru-ICICI Growth Fund.

"We primarily invests in companies with established business model, strong cash flow and use the DCF approach as an important valuation tool."

Launched in June 1999, Prudential-ICICI Growth Plan started off by benchmarking its portfolio composition against the S&P CNX Nifty Index. With a blend of growth and cyclical stocks in its kitty, the fund closed year 1999 with a return of 188% surpassing its benchmark by a wide margin. But an overdose of technology saw the fund loosing 33% of its value in year 2000, trailing behind Nifty. Over the longer haul the fund has posted an impressive return of 24.32%.

Going forward, Dileep Madgavkar talk about his Investment Strategy for Pru-ICICI Growth Plan

Q. What is investment strategy of Prudential ICICI Growth Fund?
Dileep: We as a fund house follow bottom up approach for stock selection and investment.

Q. Does the fund follow any specific stock selection criteria before investing?
Dileep: The fund primarily invests in companies with established business model, strong cash flow and uses the DCF approach as one of the most important valuation tool for investment consideration apart from other qualitative and quantitative aspects of the business.

Q. Does the fund follow any specific risk control measures an internal limit for sector / stock exposure? How stringently it is / will be followed?
Dileep: The fund strictly follows internal liquidity norms and must comply with other internal risk control measures (shareholding pattern, volatility etc).It is a diversified equity fund normally can invest about 95% in equity and related instruments and the balance is invested in Debt/Cash & Call. We adhere to the SEBI prescribed norm of 10% limit for an individual stock. The fund has a bottom up approach to investing. Sectoral exposures are limited to prudent levels. Though there are no set guidelines limiting sectoral exposure, it will be non-compliance with other risk control measures (mentioned) which would cap sectoral exposure.

Q. What is the risk return spectrum along which you plan to pitch the fund going forward?
Dileep: The fund intends to maintain a middle path in terms of risk- return pay off. It is a diversified fund and will in all times maintain the internal limits on sectoral and individual stock exposures. As a fund house, our endeavor is to provide stability and consistent returns over all periods of time.

Q. The fund reduced its technology exposure and holds a fairly broad-based portfolio. What is the your outlook on the technology sector?
Dileep: We are positive in the long term. We see a global adjustment in the sector. It is currently going through a phase of volatility due to uncertainty in the short-term growth rates. We expect things to settle down soon and distinguish the winners from the losers. We have maintained near neutral weight in the sector and we would review our current stand at an appropriate time.

Q. What has been the portfolio turnover of the fund in its tenure?
Dileep: Our investment decisions are clearly driven by individual stock valuation. During any period, the turnover of the portfolio will depend on the target prices set and achieved on the basis of valuation of individual stocks. During the tenure of the fund the portfolio turnover has been moderate.

Q Any specific reason for high cash position in the fund?
Dileep: There are structural and systemic changes in the country. Global markets are going through a phase of slowdown and we are just beginning to see a reasonable correlation to the global movements. We have seen increasing number of variables driving the markets, which has in turn resulted in higher volatility. We are cautious and intend to buy growth stocks at attractive prices. Due to the high volatility we have manage to get bargains on days of sharp movements. Normally, the average cash position in the portfolio, in a quarter, would be less than 15%.

Q. Your favourite stock / sectors?
Dileep: We are positive on the stocks that we have in the portfolio and expect it to do well in the long term. We have no sectoral preferences as we follow a bottom up approach to investing.