Among the numerous equity mutual fund categories, flexicap is the most versatile which makes it possible for the corpus to be deployed across huge, mid and compact caps based on the relative attractiveness of these person pockets. The huge cap exposure delivers defence throughout turbulence occasions, whilst mid and compact caps enable in producing much better returns more than the lengthy term. The balance in between the threat and reward tends to make it a extremely affordable investment avenue for equity investing, says Rajat Chandak, Senior Fund Manager, ICICI Prudential AMC.
In an exclusive interview with Sanjeev Sinha of FE Online, Chandak shares his views on the stock markets and their newly-launched Flexicap Fund. Excerpts:
The Indian stock markets have been largely resilient hence far. Do you see this trend continuing?
The Indian markets in line with the international markets have been supported by liquidity unleashed by the international central banks. This coupled with practically zero expense of capital in most components of the world has played a huge part in guaranteeing that equity markets stay resilient. From a company cycle point of view, the Indian markets stay appealing as corporates have deleveraged, capex cycle is but to revive, and each credit development and profit to GDP ratio is low. So, compared to international company cycle, the threat of company cycle contraction in India is extremely low. However, equity valuation is no longer cheap as it was in March 2020.
ICICI Prudential has launched the ICICI Prudential Flexicap Fund. Why do you feel this category is relevant in the present industry atmosphere?
Among the numerous equity mutual fund categories, flexicap is the most versatile which makes it possible for the corpus to be deployed across huge, mid and compact caps based on the relative attractiveness of these person pockets. The huge cap exposure delivers defence throughout turbulence occasions, whilst mid and compact caps enable in producing much better returns more than the lengthy term. The balance in between the threat and reward tends to make it a extremely affordable investment avenue for equity investing. Given this framework, we think flexicap is an intriguing proposition for a lengthy-term investor.
How is IPRU Flexicap various from the other funds in this category?
The differentiation issue in case of the ICICI Prudential Flexicap Fund is the model-based method when it comes to deciding on allocation to numerous industry capitalisations. The scheme will be relying on an in-home industry-cap model and other financial indicators. This model will be relied upon for portfolio re-balancing as nicely.
This model comprises of parameters such as industry cap weight as a percentage of total industry cap, valuation differential of midcap and compact cap more than huge cap and Relative Strength Index (RSI). RSI gauges no matter whether the unique industry cap is in overbought or oversold zone. The fund manager would additional look into the company cycle or macro-financial indicators to fine-tune the model allocation.
If the industry continues to stay elevated, what would be the portfolio like for this fund?
While the industry valuation is wealthy, the outlook on earnings development remains positive. The deployment phase will be gradual in nature and more importantly will be accomplished judiciously by deciding on sectors and stocks exactly where we see possibilities for affordable threat-adjusted return from a medium to lengthy-term timeframe.
What are some of the essential dangers that can derail the present rally?
Rising inflation is one of the threat things to be mindful of. Historically, whilst manageable inflation tends to be a positive for equities (supports nominal development in GDP and earnings), it could also lead to greater interest prices which could derail the pace of financial recovery. Currently, most of the international central banks appear to be taking greater inflation levels in their stride. The other substantial threat is how the pandemic is probably to pan out. Given a substantial portion of the population is probably to be vaccinated, the disruption possible seems to be muted.
Which sectors are you more than and underweight on?
We think there is possible across numerous sectors, on a bottom up basis, to provide excellent earnings development. We see possibilities especially in huge private banking space, automotive business, retail, building and telecom.
When it comes to sectors which are high-priced, FMCG (customer staples) is one such sector. Technology is one more pocket which has undergone a re-rating more than the previous 15 months.