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It is noteworthy that India's banking and financial services sector stands on strong foundations of very prudent policy framework laid by the regulator(s). Moreover, with our economy being a developing one, the avid appetite for consumer and corporate credit, often works in favour of this sector. Also, favourable demographics and several unbanked regions makes the sector promising to invest. Likewise, other allied industries such as insurance, asset management and stock broking which are integral, also broaden the scope of investment in the theme.
ICICI Prudential Banking & Financial Services Fund (IPBFSF) is one such open-ended thematic fund, from the stable of ICICI Prudential Mutual Fund that focuses on investing in opportunities available in the banking and financial services sector. It is mandated to invest 70%-100% of its asset in equity and equity related securities of companies engaged in banking and financial services, and the rest (i.e. upto 30%) in debt market instruments. Launched in August 2008, IPBFSF has been in existence for a little over 3 ½ years now.
Fund Profile & Investment Decision Snapshot
| Type of scheme | Open-ended |
| Category | Sector/Thematic |
| Sub-category | Banking & Financial Services |
| Style | Blend |
| Launch date | 22-Aug-08 |
| Risk-Return proposition | High Risk-Moderate Return |
Investment Objective and Proposition
The fund's primary investment objective is "to generate long-term capital appreciation to unit holders from a portfolio that is invested predominantly in equity and equity related securities of companies engaged in banking and financial services."
Portfolio Characteristics
In the last one year, exposure of IPBFSF to large caps has ranged between 57.0%-72.0% of its assets while the exposure to midcaps was in the range of 21.0%-31.0%. The fund has occasionally taken aggressive cash calls in the past 1 year as its exposure to debt and cash has remained in the range of 3.0%-16.0%.
Being a sector fund, IPBFSF follows top-down approach while buying stocks for its portfolio whereby it invests only in Banking and Financial Services Sector. Under normal circumstances, the fund invests about 70%-100% of its assets in equity and equity related instruments belonging to Banking and Financial services sector; including derivatives to the extent of 75% of the net assets. For defensive positioning of the portfolio, the fund manager has the flexibility to invest in debt, cash and cash equivalent assets to the extent of 30%. Also, the fund has freedom to invest across market capitalisations and is benchmarked against BSE BANKEX.
Equity Portfolio
| Holdings | Nov 2011 | Dec 2011 | Jan 2012 | Feb 2012 | Mar 2012 |
| HDFC Bank Ltd. | 10.6 | 10.8 | 10.8 | 15.3 | 22.2 |
| ICICI Bank Ltd. | 19.8 | 21.9 | 21.9 | 19.3 | 17.8 |
| IndusInd Bank Ltd. | - | 6.6 | 6.6 | 7.9 | 8.0 |
| Bank Of Baroda | 6.4 | 5.8 | 5.8 | 6.0 | 5.9 |
| Sundaram Finance Ltd. | 2.5 | 4.0 | 4.0 | 5.2 | 5.4 |
| Axis Bank Ltd. | 9.3 | 5.0 | 5.0 | 5.3 | 5.1 |
| State Bank Of India | 6.6 | 6.0 | 6.0 | 4.8 | 4.4 |
| ING Vysya Bank Ltd. | 2.4 | 3.8 | 3.8 | 3.7 | 3.7 |
| Mahindra & Mahindra Financial Services Ltd. | 2.0 | 2.5 | 2.5 | 4.2 | 3.6 |
| IPBFSFC Ltd. | - | - | - | 3.6 | 3.6 |
As per the portfolio disclosed on March 31, 2012, the fund holds in all 18 stocks. Top-10 stocks constitute 79.7% of the portfolio, while its top-5 sector concentration has been 97.2% of its total portfolio. As on March 31, 2012, the large caps constitute 71.5% of the portfolio, while its exposure to mid and small caps was at 25.6%, while cash and cash equivalents assets to the tune of 2.8%. The fund manager of IPBFSF has not churned the portfolio aggressively as revealed by its portfolio turnover ratio of 0.68 times - which is considered low to moderate.
How IPBFSF has fared vis-à-vis its peers
| Scheme Name | 6-Mth (%) | 1-Yr (%) | 3-Yr (%) | 5-Yr (%) | Std. Dev. (%) | Sharpe Ratio |
| Reliance Banking (G) | 6.3 | -11.5 | 30.5 | 20.9 | 9.66 | 0.26 |
| Sahara Banking & Financial Services (G) | 5.4 | -10.4 | 29.9 | - | 9.88 | 0.25 |
| Religare Banking (G) | 5.0 | -8.4 | 28.6 | - | 8.46 | 0.25 |
| ICICI Pru Banking & Fin Serv (G) | 8.4 | -7.8 | 28.1 | - | 8.79 | 0.24 |
| UTI Banking Sector (D) | 7.7 | -9.6 | 28.0 | 15.1 | 9.25 | 0.24 |
| Sundaram Fin Serv Oppor (G) | 6.6 | -11.7 | 26.3 | - | 9.88 | 0.22 |
| BSE BANKEX | 8.1 | -8.0 | 30.0 | 12.2 | 10.41 | 0.24 |
The table above reveals that IPBFSF's performance has been ordinary. Over a 3-Yr time frame, the fund has generated returns at 28.1% CAGR, thereby underperforming its benchmark index – BSE BANKEX with a noticeable margin. On the volatility front, the fund has exposed its investors to low risk (as revealed by the Standard Deviation of 8.79%) thereby being less volatile than some of its peers in the category as well as its benchmark. On the risk-adjusted return parameter too (as gauged by the Sharpe ratio), returns appear mediocre in comparison with its peers.
Performance across Market Cycles
| BEAR PHASE | BULL PHASE | CORRECTIVE PHASE | |
| 22-Aug-2008 | 09-Mar-2009 | 05-Nov-2010 | |
| ICICI Pru Banking & Fin Serv (G) | -40.2% | 117.5% | -13.2% |
| BSE BANKEX | -45.4% | 135.5% | -13.6% |
Study of performance across market cycles reveals that IPBFSF has performed reasonably well during the bear and corrective market phases. However, it has failed to outpace its benchmark in the bull market phase.
Fund Manager Profile
| Name of the Fund Manager | Mr. Venkatesh Sanjeevi |
| Total Work Experience | Over 4 years |
| Managing the fund since | Feb-12 |
| Qualifications | B.com, ACA, PGDM |
IDBI India Top 100 Equity Fund
| Type | Open-ended diversified equity scheme | Additional purchase: | Rs 1,000 and in multiples of Re 1 thereafter |
| Min. Investment | For lump sum:Rs 5,000 and in multiples of Re 1 thereafter | ||
| Face value: | Rs 10 per unit | Benchmark Index: | CNX 100 Index |
| Issue Opens | April 25, 2012 | Issue Closes | May 09, 2012 |
| Entry load: | Nil | Exit load: | 1%* |
* An exit load of 1.0% will be charged if redeemed or switched out on or before completion of 1 year from the date of allotment of units.
Investment Objective*
The investment objective of the scheme is "to provide investors with opportunities for long-term growth in capital through active management of a diversified basket of equity stocks, debt and money market instruments. The investment universe of the scheme will be restricted to equity stocks and equity related instruments of companies that are constituents of the S&P CNX Nifty Index (Nifty 50) and the CNX Nifty Junior Indices comprising a total of 100 stocks. These two indices are collectively referred to as the CNX 100 Index. The equity portfolio will be well-diversified and actively managed to realize the Scheme objective."
*Source: Scheme Information Document
Is this fund for you?
IDBI India Top 100 Equity Fund (IIT100) is the first actively managed diversified equity fund, from the stable of IDBI Mutual Fund, being linked to CNX 100 index as its benchmark. Being a diversified equity fund, IIT100 has the freedom of investing across stocks and sectors within the universe of the CNX 100 index, thereby attempting to generate opportunities for long-term wealth creation. The fund will attempt to identify companies which are fundamentally sound and have long-term growth potential. But having said that, IIT100 will not refrain from taking short-term opportunities which may arise from time to time. Thus, this may lead to some trading in the portfolio as well, where the fund manager would take a call depending upon the opportunities prevailing in the market during valuation mis-match and other events in the equity markets.
However for the risk control and monitoring of the fund, the Asset Management Company (AMC) - i.e. IBDI Asset Management Limited, will monitor the following aspects:
· Overall economic environment
· Company specific news
· Financial performance
· Liquidity
As far as the fund house is concerned, IDBI Bank Ltd. stands as the sponsor to the AMC (IDBI Asset Management Ltd.) Incorporated in January 2010, the AMC has been in existence for only little over a couple of years. The fund house initially launched debt mutual fund schemes and then later in the equity mutual fund category launched indexed based products (which are passively managed).
Portfolio & Investment Strategy
IIT100 will follow a growth style of investing, and while discovering stocks for its portfolio will adopt a top-down as well as bottom-up approach to investing. To identify fundamentally strong companies (which have a potential for long-term growth) at reasonable prices within the universe of CNX 100, the fund will focus on the following factors amongst others:
· Competitive position
· Earnings growth
· Management quality
· Liquidity
But IIT100 will not rule out short-term opportunities that may arise from time to time. Thus, this may lead to some churning in the portfolio, where the fund manager would take a call depending upon the opportunities prevailing in the market during valuation mis-match and other events in the equity markets.
Moreover for hedging and portfolio balancing purpose, IIT100 may also invest in derivative instruments (in accordance to the guidelines stipulated by RBI) upto 50% of its net assets, where it could take both long and short positions, depending upon what is deemed fit. However, the fund will not write options or purchase instruments with embedded written options.
The asset allocation which will be followed by the fund will be as under:
| Instruments | Indicative Allocation Range | Risk Profile | |
| Minimum | Maximum | ||
| Equity and equity related instruments of constituents of CNX 100 Index | 70 | 100 | High |
| Debt and money market securities | 0 | 30 | Low to Medium |
(Source: Scheme Information Document)
Fund Manager Profile
IIT100 will be managed by Mr. V. Balasubramanian (53 years of age), who holds over 30 years of experience and has to his credit a Masters' degree in Commerce (M.Com) along with being a Certified Associate of the Indian Institute of Banking (CAIIB).
Prior to being appointed as the fund manager in IDBI Asset Management Ltd (in November 2011), he worked as a dealer with the same AMC. Moreover, he's also been an ex-banker during his stint with Indian Bank.
Fund Outlook
The launch of the fund has come at when the Indian equity markets are undergoing a corrective phase and where the BSE Sensex is still down by good -22.6% from their last peak of 21,004.96 points (made on November 5, 2010). Thus this gives the fund manager the opportunity to undertake value buying, at these reasonable valuations of the equity markets. But, given the fact that global markets are feeling the shivers of sovereign rating downgrades and economic forecast being tapered, the downside risk to IIT100 cannot be ruled out in the immediate ensuing months post its inception. While at present the RBI has reduced the policy rates by 50 basis points (bps), it may fail to provide impetus to economic environment, unless we see policy rates pulled down further. Thus while the opportunities for the fund manager may be galore, the economic and political risk looming make it risky.
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