How is life after Nilesh Shah’s resignation? Succession plans? Are concerned large investors, who bought schemes after Shah had turned them around years back, calling up?
I can’t comment on the succession plan but ultimately our fund performance has to speak. We are answerable to our investors. Our long-term performance is in place. Shah played a mentoring role for us when I along with two other fund managers joined in 2004 with only analyst/broking experience (there were around six-seven other fund managers in ICICI Prudential then).
How is investor confidence in these markets?
Investors seem to be making good money. They invested in falling markets, for instance in May and November-December. Whereas many investors withdrew between September and October when markets went to a new high. Aside from systematic investment plans (SIPs), investors have used volatility the way it should be used. That’s a welcome development.
But what about the huge redemptions we saw in 2010? Do you see that getting arrested?
As far as redemptions are concerned, whoever wanted to redeem seems to have done that already. The recent initial public offering (IPO) of Coal India Ltd showed us that the retail investor has come back to the market.
Traditionally, in India, investors come into the equity markets through IPOs and new fund offers and in IPOs, they were losing money over 2009-10. After Coal India IPO, the attitude is more positive. In any case, what we are looking forward to is bringing in money through SIPs over a long period of time. To that extent, I don’t think there has been any problem. Steady inflows in SIP have happened. As long as investors withdraw during rising markets and invest when markets fall, it’s a good sign.
Investors also withdrew from infrastructure schemes, whereas they should have put more money. We believe infrastructure would do well going forward. If we keep adding cars on the road and do not improve our roads, we may soon have to follow the Beijing model. In Beijing, they have suddenly reduced the car permits from 750,000 to 250,000 per annum; only 250,000 new cars will be allowed to be sold (registered) throughout the year to counter traffic.
Why do you have equity funds based on themes such as asset allocation, value investing and so on, rather than flagship schemes based on market capitalization?
We believe our product basket is exhaustive. We have three pure large-cap funds; “target-return”, “growth” and “focused equity”. We have a pure mid-cap called “emerging star”. We have a part mid-cap, part large-cap fund called “equity opportunities”. And we have “power” fund which has more mid-caps than our other large-cap funds and lesser mid-caps than “equity opportunities”. Our corpus in large-caps is very small though as compared with our other thematic funds such as ICICI Prudential Infrastructure Fund or our value-oriented fund ICICI Prudential Discovery Fund.
Since ICICI Prudential Dynamic can stock up higher levels of cash, how different was the year 2010 compared with 2007 and 2008?
We increased our cash levels in 2010 because of heightened volatility. This is one of the few funds that will make money on market return and volatility. Our one-year performance is still ahead of the benchmark index (Nifty) despite cash levels being high. All three events this year concerning credit crisis (Dubai, Greece and Ireland) gave us the opportunity to make money because we were sitting on cash before these events occurred. We don’t take cash calls based on events, but on market levels.
Most value-oriented funds lean towards large-cap scrips. ICICI Prudential Discovery, your MF’s value fund, is perhaps the only one that goes more towards mid-cap and small-cap scrips. Doesn’t that make it unnecessarily risky?
In Indian markets, it’s tough to find many value scrips in the large-cap space. However, you can identify many opportunities in the mid- and small-cap space. Hence, the mid-cap focus. Also, the whole of mid-cap space is full of aggressive funds. By having a mid-cap value fund, we are offering a conservative mid-cap option which can take risks but also control it. Value funds may not perform well when markets keep rising and stretching, but they do well over a long period of time.