ICICI Prudential Bharat Consumption Fund Series 2 is opening for subscription from April 12. It will focus on domestic consumption in India, much like its predecessor Series 1 which we reviewed, here.
The fund cites four major reasons for its existence:
1) Demographics: A 50% of India’s population is in the working age and the proportion of nuclear families (which have higher consumption) is rising.
2) Economic Growth: The share of ‘affluent’ families (those with an annual income of Rs 10-20 lakhs) in total consumption is rising.
3) Rural Catch-up: Rural consumption is growing due to the government’s programmes. The spread of mobile telephones is also raising aspirations in rural India.
4) Consumption is more resilient to economic downturns than investment. This makes consumer stocks good defensive bets.
Domestic consumption means sectors like consumer durables and non-durables, auto, healthcare, aviation and entertainment. The fund will invest 80% to 100% of its assets in the stocks of companies in these sectors, 0-20% in other companies and 0-20% in debt and money market instruments. It can invest up to 50% of its assets in derivatives (futures and options) or foreign ETFs or ADRs/GDRs (foreign listed Indian stocks).
The fund will be benchmarked against the Nifty India Consumption Index. This index has 30 consumption focused stocks such as Hindustan Unilever (HUL), ITC, M&M, Maruti Suzuki, Asian Paints and Hero Motocorp. The benchmark has delivered 16.72% over the five years ending on March 28th, 2018.
The fund will primarily be managed by Mrinal Singh who manages several other ICICI Prudential Equity Funds such as ICICI Pru Value Discovery, ICICI Pru Growth and ICICI Pru Select Large Cap Fund. He has been with ICICI Prudential AMC for the last 10 years and worked with Wipro and Bosch before that.
The fund’s predecessor, ICICI Prudential Bharat Consumption Fund Series 1 has different fund managers. They are Sankaran Naren who is the Chief Investment Officer (CIO) of the AMC and Atul Patel who also manages the AMC’s multi-cap and balanced funds.
Priya Khandelwal will manage the ADR/GDR exposure of both funds. She manages ICICI Pru US Bluechip Fund and other internal equity funds of the AMC.
Consumption is an evergreen theme in India and is resilient to downturns. However, consumer stocks also tend to trade at very high valuations. A lot will depend on the skill and stock-picking ability of the fund manager.
A major argument for closed-ended funds is that the fund manager will invest more efficiently without the threat of large outflows. However, this is less true in consumer good companies that tend to be large and liquid.
Invest in the fund if you want to avoid the temptation and stress of jumping in and out of open-ended sector funds. If you prefer liquidity, go for an open-ended counterpart such as ICICI FMCG fund.
NFO Period: 12th April to 26th April
Fund Manager: Mrinal Singh and Priyanka Khandelwal
Benchmark: Nifty India Consumption Index
Minimum Investment: Rs 500
Tenure: 1,300 days (A little more than 3.5 years)
Options: Growth (called Cumulative), Dividend Payout and Dividend Transfer (which will invest dividends in other open-ended ICICI Prudential Schemes).