ICICI Prudential Contra Strategy PMS

Fund Snapshot

Investment Objective

ICICI Prudential PMS Contra Strategy (the “Contra Strategy”) seeks to generate capital appreciation by investing predominantly in equity and equity-related instruments through contrarian investing.

Types of Securities

The Contra Strategy predominantly invests in listed equity and equity-related securities. The Contra Strategy may also take exposure to exchange-traded derivative instruments for hedging purposes. For liquidity or defensive considerations or pending deployment, the Portfolio Manager may invest in debt, money market instruments, mutual fund schemes or debt ETFs.

Basis for Selection of securities

The Portfolio Manager follows a ‘Contra’ style of investing, which involves taking contrarian bets on equity stocks, i.e., taking calls/exposure on stocks that are currently not in favor in the market but are expected to do well in the long run. The Portfolio Manager may also select stocks of companies in sectors where entry barriers are high, sectors in consolidation or companies in special situations.

Top 5 Sectors

Market Cap Breakup

Top 15 Holdings (%)

Investment Framework

Core Belief: Companies create wealth, not markets

Aims to Identify Prominent Businesses, Competent Management, at Reasonable Valuations

1st Filter: Business

• Company growing faster than industry & industry faster than market
• Qualitative assessment based on the concept of “economic moats*”
• Foreseeable changes in business leading to a positive outcome

2nd Filter: Management

• Focused on growth, improving margins & prudent capital allocation
• Competent managers with a credible track record
• Fair corporate governance standards, with aligned shareholder interests

3rd Filter: Valuation

• Cash flow is central in our Investment Process about a company’s value
• Evaluation of margin of safety required according to the ‘moat’ and competence of management
• Better risk reward profile

The Circle of Competence

• Meaningful Growth
• Evaluate Moat
• Cash, not accounting profits
• Improving HNI
• Management Leadership
• Evaluate Margin of Safety

Evaluation, Selection, and Sizing

• Initial in-house screening process – 2500 Companies
• Active coverage of company – 440 Companies
• Applying the BMV Filtration – 100–150 Companies
• Identifying potential Opportunities – 40-45
• Portfolio Construction – 25–30 Companies

Contrarian Investing

High Entry Barriers Businesses going through Unfavorable Business Cycle

Investing into sector or companies where prevailing sentiments are not positive at the time of purchase. Aims to invest into Competent Players / Survivors within the sectors

Consolidation in Industry

Industry challenges leading to a reduction in players. Distress exits may create growth opportunities for existing players.

Special Situations

This may include, Mergers, Acquisitions, Changes in Holding-Subsidiary company, Product, or department spin offs, etc.

How does it work?

• Identification of sectors or companies which are facing temporary headwinds.
• Parameters such as RoE, RoCE, Market Cap by Cash Profit, P/E, Corporate Governance & Capital Allocation Track Record are used to determine investability
• Concentrated portfolios of high conviction ideas.

Investment Objective

ICICI Prudential PMS Contra Strategy (the “Contra Strategy”) seeks to generate capital appreciation by investing predominantly in equity and equity related instruments through contrarian investing.

Types of Securities

Predominantly invests in listed equity and equity related securities. The Contra Strategy may also take exposure to exchange-traded derivative instruments for hedging purpose. For liquidity or defensive considerations or pending deployment, the Portfolio Manager may invest in debt, money market instruments, mutual fund schemes or debt ETFs.

Strategy-Specific Risks

The Contra Strategy predominantly selects stocks following a Contrarian style of investing.

There could be times when securities selected based on their relevancy to the investment style followed by the Portfolio Manager underperform relative to other stocks or the overall markets. This could impact performance.

• The Contra Strategy aims at maintaining a diversified portfolio without any undue concentration in any sector or stock and the portfolio may underperform relative to concentrated portfolios during certain periods of time.
• The Contra Strategy invests across market capitalization. Hence, risks relevant to investing in small and mid-cap stocks are also applicable for the strategy.
• The Contra Strategy predominantly invests in equity and equity related securities including exchange-traded derivatives and liquid and other short term mutual fund schemes including liquid ETF. Below are the risk factors relevant for each security:
  • Risks related to equity and equity related instruments
  • Risks related to derivative investments
  • Risks related to investments in debt and debt related instruments

Key Structural Reforms in Past and its Impact on India Corporates

• RERA & Goods & Services Tax
• Insolvency & Bankruptcy Code
• Corporate Tax Rate
• Production Linked Incentive / China Plus One Business Strategy
• Increase in Budgeted capital expenditure in the Union Budget of FY 2022-23 of 35%

Basis for selection of securities as a part of investment approach

The Portfolio Manager follows ‘Contra’ style of investing which involves taking contrarian bets on equity stocks, i.e., taking calls/exposure on underperforming stocks which are currently not in favor in the market but are expected to do well in the long run. The Portfolio Manager may also select stocks of companies in sectors where entry barriers are high, sectors in consolidation or of companies in special situations.

Justification of Benchmark

The Portfolio Manager under the Contra Strategy will aim to have optimal diversification across stocks and high conviction picks that have potential to generate higher alpha. S&P BSE 200 index constitutes top 200 companies by market capitalization representative of large and mid-capitalization companies. Therefore, the index is ideal benchmark for the portfolio.

Strategy : Equity

Types of Securities

The Contra Strategy predominantly invests in listed equity and equity related securities. The Contra Strategy may also take exposure to exchange-traded derivative instruments for hedging purpose. For liquidity or defensive considerations or pending deployment, the Portfolio Manager may invest in debt, money market instruments, mutual fund schemes or debt ETFs.

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