always been to identify those market not been re-rated.

Only the IT sector

segments that today may be under- Performance report has re-rated, but outside this sector,
owned, disliked by the market or In % there are a lot of segments that
underperformed on a three-year ICICI Pru Bal. Advantage Fund haven’t been re-rated. So, being
basis. This is the general area I am Managing since January 29, 2018 associated with quality stocks today
focusing on. I don’t want to bucket it has hurt fund managers if they’ve
Fund 11.59
into either a growth, quality or value been invested for three years.
style. I would be open to investing in Category average 10.60 I think the existing holders would
any of the three segments. But, my VR Dynamic also be under stress from a
10.73
initial focus is on underperformance, Asset TRI performance perspective. But anyone
underownership and a market looking at quality today can be a
segment experiencing temporary good entry point for me because I’m
stress. I feel this approach offers a ICICI Pru Large & Mid Cap Fund not carrying the baggage of
strong margin of safety regarding Managing since June 1, 2022 underperforming quality stocks. So,
the business value and the price Fund 24.97
if I’m trying to enter it today, I’m
I am willing to pay to acquire getting that these businesses may
those businesses. Category average 21.97 not be at a very cheap valuation. Still,
BSE Large
17.49
relative to the market, it is a fair
Mid Cap TRI
What non-negotiable criteria valuation to be associated with or be
must a company meet to make it invested in quality stocks today.
into your portfolio?
As minority shareholders in most ICICI Pru Infrastructure Fund We’ve seen reduced exposure to
companies, we can’t influence their Managing since June 5, 2017 mid and small caps in the ICICI
operating performance. I feel that a Pru BAF and Multi Asset Fund. Is
Fund 19.17
company’s management, promoters this a valuation-driven shift or
or significant owners should be fair Category average 17.17 does it reflect broader trends
to minority shareholders. Even if BSE India 16.55
favouring large caps?
there have been historical track Infra TRI Broadly, when we reduce the
records of companies not being fair allocation to an extent, it’s more of a
to minority shareholders, I wouldn’t bottom-up thought process because,
want to be a part of that company’s ICICI Pru Multi Asset Fund internally, we maintain fair values for
growth story or investment journey. Managing since June 5, 2017 the stocks we own. Typically, when
So, being fair to minority Fund 16.35
the stocks start trading about one
shareholders is very important. year or even slightly longer than that
Category average
The second criterion is capital 12.59 period, fair values give the fund
discipline. This includes effective VR Multi
12.16 manager a trigger, or it hints to the
Asset TRI
capital allocation, returning a fund manager that they have to
portion of earnings to shareholders Point-to-point returns for direct plans as of reduce exposure. So, generally, it is
January 31, 2025.
and prudent capital allocation, all of more of a bottom-up stock that we
which are crucial considerations have held in the portfolio.
when evaluating a business or As discussed earlier, in my initial Mid and small caps are the ones
its management. framework, I look for companies that crossed the one-year fair value
underperforming over a three-year or are trading higher than the
Sankaran Naren recently said time frame and those that markets medium-term fair value as well.
quality stocks are looking are not interested in. I think most We’ve reduced exposure over taking
attractive after a period of boxes have been ticked for quality as a very harsh top-down view, saying
underperformance. Do you share a style because it hasn’t performed that we have to aggressively reduce
this perspective and consider over this period. Many of these mid- and small-cap exposure as the
quality investing a key theme quality businesses, which have a reduction also would be a gradual
moving forward? high ROE (return on equity), have process. It’s not something we’ve

Mutual Fund Insight March 2025 33

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 INTERVIEW

done over a month or two months, the benchmark. What has

but because the markets kept contributed to this resilience?
going up, the fair value of the From an investment perspective, I
stocks started trading above the strongly believe in purchasing
fair value rate. undervalued stocks with low
expectations. I think that these two
What are your views on key ingredients in stocks provide
the investment case for significant downside protection.
multi-asset funds? When there are low expectations,
As I mentioned, it’s similar to the the probability of earnings
balanced advantage fund. So, downgrade is low, as there is no
volatility is expected, and even the expectation of growth or delivery
multi-asset fund is dynamically from that company. When you buy
managed. The ability to toggle or top it up with an under-owned or
between the three asset classes is Our preference for PSU under-the-radar stock, there isn’t
also quite high, and we are better stocks and a bottom-up enough ownership to correct.
positioned to do it for an individual So when you have a combination
in the current framework. That is
stock selection helped of under-ownership and less or
also why we feel that, in a volatile in Large & Mid Cap pessimistic expectations from the
environment, both these funds Fund's performance stock, I think it provides excellent
should be the preferred choice downside protection. But obviously,
for investors. when I build a position in it, I
selection and strict adherence to expect that this stock will deliver,
The ICICI Prudential Large & Mid the investment framework we have and there can be earnings upgrades
Cap Fund did well over the past implemented. If you look at the or positive surprises to the market,
year, though its performance near-term performance, it may have which will lead to a positive
margin compared to peers has taken a slight dip, due to the reinforcing cycle in earnings and
narrowed since 2022. What are preference for large caps versus multiple expansions.
the key drivers behind it? mid caps. I think the fund’s peers
Following a disciplined investment would be more inclined towards We’ve seen a 35-40 per cent
process and rigorously applying it mid caps. overlap of the Large & Mid Cap
across sectors is essential. I think Secondly, as I’ve been saying, Fund with the ICICI Pru Value
that’s what we’ve also tried to do in the portfolio is repositioned towards Discovery Fund. How do you
this strategy. What is yet to play out, more quality stocks, which didn’t do manage portfolio overlap?
I would say, is our preference for as well over the last six months as I believe that 30-40 per cent of us
large and mega caps versus mid the broader market. Yet, this is a would typically invest in most of
caps. I think that’s how our product strategy I implemented today, and I these schemes due to the
is positioned in the market, and that anticipate it to perform well in the widespread use of ICICI
is yet to play out. But to a significant future. I believe repositioning may Prudential’s research. I usually buy
extent, these sectoral calls have also have, to some extent, negatively IT stocks based on IT analysts’
played out. I would think last year or impacted near-term performance. recommendations. If I buy
slightly before, we’ve had a But if you look at the longer-term something in the Auto sector, the
preference for autos and pharma. A period, maybe a three-year auto analyst will recommend it,
few years ago, we preferred PSUs in performance, this fund performed increasing overlap. However, I
this particular product, and relatively better than its peers. would see it the other way; around
implementing top-down sectoral 60 per cent of the portfolio is still
calls, in conjunction with bottom-up Over the past few months, the different. So, despite a common
stock selection, has been beneficial. Large & Mid Cap Fund showed research pool, if we can differentiate
Generally, the strategy involves strong downside protection, 60 per cent of the portfolio, that’s
sectoral calls, bottom-up stock falling less than its peers and also a differentiated offering.

34 Mutual Fund Insight March 2025

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