ICICI Prudential Bharat Consumption Fund -Series 5, a bet on consumer walletICICI Prudential Mutual Fund’s close-ended offering ICICI Prudential Bharat Consumption Fund -Series 5 closes on November 21. The product is a pure play on Indian consumption, arguably one of the largest markets in the world. The fund-house believes Indians want to eat, live and feel better. This, as a result, is fuelling a long term consumption story that derives strength from a large growing population coupled with a young median age, rising affordability as a result of rising income levels and increasing urbanisation resulting in increase in consumption.

The fund seeks to benefit from consumption theme like Consumer Non-Durable, Consumer Durable, Auto, Healthcare Services, etc. that are likely to play out well with three years investment horizon. Read RupeeIQ’s take on it.

Type of scheme – This is a close ended equity scheme following Consumption theme. So, once the NFO is over, the fund does not open for subscription till maturity. Naturally, your investments in this fund have to be lump sum. They cannot be in SIP format.

Fund construct – The scheme aims to invest in sectors that can benefit from consumption theme like Consumer Non-Durable, Consumer Durable, Auto, Healthcare Services, etc. that are likely to play out well with a three years investment horizon. The fund will use bottom-up stock selection. It may reduce net equity risk at market peaks by hedging/use of derivatives. It will also aim to limit downside of the portfolio by using hedging strategies.

Deployment strategy – Gradual is the way to go. The fund house has previously launched Series 1 to 4 of ICICI Prudential Bharat Consumption Fund. If you see the following table, you can understand how the schemes do not commit to 100% equity exposure at one go. ICICI Prudential Bharat Consumption Fund – Series 1 – Growth is about 42% equity exposure despite being launched in April. ICICI Prudential Bharat Consumption Fund – Series 4 – Growth has over 64% equity exposure.

ICICI Pru consumption table 1 - deployment strategy

Why now – The fund appears to believe that now is a good time to buy consumption oriented stocks. Consumption wise, many negative factors that happened over the previous years are nearly absent now like deficient monsoon in FY14, FY15, low wage growth, and minimal MSP hikes. Also, chances of businesses being impacted by events such as demonetisation and GST are low.

NFO Period – November 7 to November 21, 2018.

Loads – There is no entry or exit load.

Benchmark Index – Nifty India Consumption Index. This benchmark’s sectoral exposure consists of Consumer Goods 54.03%, Automobile 28.79%, Telecom 5.98%, Media & Entertainment 3.52%, Textiles 2.16%, Services 2.06%, Energy 1.38%, Healthcare Services 1.11% and Pharmaceuticals 0.97%

Fund Managers – Sankaran Naren and Roshan Chutkey

Performance of previous launches (Series 1 to 4) – None of the schemes have completed one year. So, the Series 1 to 4 funds right now shows very short-term performance. Since these are close ended funds, the timing of fund launch and deployment of money guides the returns. Below is a snapshot of how the funds have done and how the benchmark has fared. There is no need to worry about any under-performance just as there is not much to be excited about out-performance. The real game of the funds will only begin once they are almost fully invested in equities.

Fund name
1-Month NIFTY India Consumption TRI 1-month 3-Month NIFTY India Consumption TRI 3-month
Return % Return % Return % Return %
ICICI Prudential Bharat Consumption Fund – Series 1 1.11 4.13 -1.29 -8.81
ICICI Prudential Bharat Consumption Fund – Series 2 0.82 4.13 -1.71 -8.81
ICICI Prudential Bharat Consumption Fund – Series 3 1 4.13 -1.56 -8.81
ICICI Prudential Bharat Consumption Fund – Series 4 2.68 4.13 -8.81
* TRI – Total Return Index

RupeeIQ take – We have long believed that the ability to deliver returns in a close-ended structure is not as challenging if the fund manager has already selected the initial basket of investment-worthy stocks. But what matters in a close-ended structure is the timing. High quality and good consumer-oriented businesses have done well over the past. They trade at premium valuations and also don’t suffer huge de-rating unless there is something fundamentally wrong with the business. From that viewpoint, consumer funds are an interesting play. The fund manager of all the Series 1 to 5 are similar. So, these funds may be similar baskets that are being made with similar stocks but with different cost prices. Interested investors may keep these things in their mind. Also, do note that this type of funds is best suited for somebody who wants to take lump sum bets on a theme.

Disclaimer: The article is only for informational purposes. Investors are requested to consult their financial, tax and other advisors before taking any investment decision.

Author
Rahul Sharma

Rahul Sharma is a contributing writer with RupeeIQ. He can be contacted on contact@rupeeiq.com