ICICI Prudential MNC Fund: Can It Prove To Be A Wealth Multiplier?
Jun 04, 2019

Author: Aditi Murkute

(Image source: Image by rawpixel from Pixabay)

ICICI Prudential MNC fund is another open-ended equity thematic fund launched by ICICI Prudential Mutual Fund.

What is a Thematic/Sector Fund?

A thematic/ sector fund aims to invest in companies that are unified with one specific theme or of that sector. For example, a fund investing in housing theme would invest in sectors such as construction, banks, cement, steel, paints, sanitary ware, etc. that are related sectors that get a boost from demand in housing.

Such funds are usually launched at a time when fund houses sense a growth potential of a certain sector or a cluster of sectors in the medium to long-term future.

As per the current AMFI mandate, the investment in equity and equity related instruments of a particular sector/ theme should be minimum 80% of total assets.

ICICI Prudential MNC Fund is one such thematic fund that aims to invest in equity and equity related instruments of multinational companies (MNC);

  • Companies incorporated within India having business operations spread across globe,

  • Foreign companies having business operations in India,

  • And foreign companies that have business spread globally but are not listed on the Indian Stock exchanges.

An MNC is sector and market cap agonistics. MNCs generally have a strong competitive advantage in terms of sustainability over a long term as it has good management, strong balance sheet with global brand presence. Due to good corporate governance, they exhibit better operational efficiency to maintain strong balance sheet and are stable during times of market volatility.

Image 1: The MNC Advantage

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(Source: ICICI Prudential MNC Fund Investor Presentation)


The fund house is of the view that since, MNCs are coupled with a suite of time-tested products & services and are well positioned to benefit from growth prospects across the globe. Plus, they also demonstrate better use of capital allocation and hence managed to consistently deliver higher ROE, this will help investors in creating wealth over the long term.

From a risk standpoint, given the portfolio allocation is skewed heavily to equity IPMNCF is a high-risk contender and thus suitable only for investors who have a high-to-very high-risk appetite and an investment horizon of at least 5 years.

[Read: Why Comparing Returns to Risk Is More Meaningful!]

From a tax implication standpoint, IPMNCF will be classified as an equity-oriented mutual fund scheme. Hence, if redeemed within a holding period of one-year, Short Term Capital Gain Tax (STCG) tax @ 15% will apply. And if redeemed after a period of 1 year, the Long-Term Capital Gains (LTCG) in excess of Rs 1 lakh will be taxed @10%.

Table 1: NFO Details

Type An open-ended equity scheme Category Thematic (following MNC theme)
Investment Objective To generate long term capital appreciation by investing predominantly in equity and equity related securities within MNC space.

However, there can be no assurance or guarantee that the investment objective of the scheme would be achieved.
Min. Investment Rs 5,000 and in multiples of Re 1 thereafter Face Value Rs 10 per unit
Plans • Regular

• Direct
Options • Growth*

• Dividend (Payout & Reinvestment*)
Entry Load Nil Exit Load • 1% of applicable Net Asset Value - If the amount, sought to be redeemed or switch out is invested for a period of upto twelve months from the date of allotment

• Nil - If the amount, sought to be redeemed or switch out is invested for a period of more than twelve months from the date of allotment
Fund Manager Mr Anish Tawakley and Mr Lalit Kumar Benchmark Index NIFTY MNC TRI
Issue Opens: May 28, 2019 Issue Closes: June 11, 2019
(Source: Scheme Information Document)


How will the Scheme allocate its assets?

Under normal circumstances, the scheme's asset allocation or asset distribution weight will be as under.

Table 2: IPMNCF's Asset Allocation


Instruments
Indicative Allocation (% of Total Assets) Risk Profile
Maximum Minimum
Equity and equity related securities within MNC space 100 80 High
Other equity and equity related instruments 20 0 Medium to High
Debt, Units of debt Mutual Fund schemes and Money market instruments 20 0 Low to Medium
Gold/Gold ETF/Units issued by REITs/ InvITs such other asset classes as may be permitted by SEBI from time to time (subject to applicable SEBI limits) 20 0 Medium to High
The Scheme may also take exposure to:
  • Derivative instruments to the extent of 100% of net assets.
  • ADR/GDR/ Foreign Securities to the extent of 50% of net assets. Investment in ADR/GDR/Foreign Securities would be as per SEBI Circular dated September 26, 2007, as may be amended from time to time.
  • Securitised debt upto 50% of debt portfolio.
  • Stock lending up to 20% of net assets.
The Cumulative Gross Exposure across various asset classes will not exceed 100% of the Net Assets of the Scheme.
(Source: Scheme Information Document)
 

What will be the Investment Strategy?

The Scheme will follow a bottom-up approach to stock-picking and primarily choose companies across sectors/market capitalization which falls under the criteria of MNC. MNCs will be those:

Foreign promoters account for more than 25% of the shareholding or

Any company that is a subsidiary, Joint Venture (JV), associate of a foreign company or

Any Indian company having more than 50% of its turnover/ revenue from regions outside India or

Any company (including foreign companies) which operates in multiple countries.

The Scheme may also take exposure in any other company which in view of the fund manager can be classified as MNC. The scheme can also invest in equity & equity related securities of other companies as stated in the asset allocation table.

The scheme will be following a blend approach, a combination of value and growth, to build the portfolio. The scheme intends to invest in stocks across large cap, midcap, small cap.

The Scheme may also use various derivatives and hedging products from time to time, as would be available and permitted by SEBI, to protect the value of the portfolio and enhance Unit holders' interest. The Scheme may also invest in depository receipts including American Depository Receipts (ADRs) and Global Depository Receipts (GDRs).

Who will manage the ICICI Prudential MNC Fund?

The ICICI Prudential MNC Fund will be managed by Mr Anish Tawakley and Mr Lalit Kumar. And the overseas investments of the Scheme will be managed by Ms. Priyanka Khandelwal.

Mr Anish Tawakley is the Head of research and fund manager at ICICI Prudential AMC. He completed his B Tech (Mechanical Engineering) from IIT Delhi followed by PGDM (MBA) from IIM Bangalore. Mr Tawakley has over 15 years of experience in equity research. Prior to joining ICICI Prudential Asset Management Company Limited in 2016, He worked with Barclays India for Equity Research for 3.5 years, and before that he worked with Credit Suisse India - Equity research - Indian financial services sector for a short time. He also worked for almost 8 years in Alliance Bernstein (UK) based in London for Equity Research - Financial Services stocks in Emerging Markets.

Currently, some of the schemes that Mr Tawakley manages at the fund house include ICICI Prudential Bluechip Fund, ICICI Prudential Manufacture in India Fund and ICICI Prudential Value Fund - Series 13.

Mr Lalit Kumar is a Senior Manager at ICICI Prudential Asset Management Company Limited. He has to his credit a B. Tech degree in Electrical Engineering from IIT Kanpur, an MBA (in Finance) from IIM Kolkata and is a CFA.

Mr Kumar has rich experience in equity research. Before joining the fund house, he was an Equity Research Analyst at East Bridge Advisors Pvt Ltd. and at Nomura Financial Advisory & Securities. Prior to that he was an Intern at Merrill Lynch for a brief period and he has also worked as a Senior Design Engineer at Cypress Semiconductors.

At ICICI Prudential Mutual Fund, Mr Kumar co-fund manages ICICI Prudential Value Fund - Series 13.

Ms Priyanka Khandelwal, as mentioned earlier, will manage the overseas investments of the Scheme. She joined ICICI Prudential Mutual Fund in October 2014 and has to her credit a bachelor's degree in commerce (B. Com), plus is a Chartered Accountant and Company Secretary by qualification. At present, Ms Khandelwal also manages ICICI Prudential US Bluechip Equity Fund and ICICI Prudential Global Stable Equity Fund.

The outlook for ICICI Prudential MNC Fund:

ICICI Prudential MNC Fund will aim to tap potential gains for long term by investing predominantly in equity and equity related securities within MNC space from India and globe. It will focus on creating a high quality & diversified portfolio using a bottom-up approach of stock selection and will be a market cap and sector agnostic. Given the asset allocation, the fortune of the fund will be closely hinged onto the performance of the stocks held in the portfolio.

Currently, the equity markets have corrected, and the 2019 Lok Sabha election results declared pushed the markets upward. But the corporate earnings haven't been very encouraging; the Nifty 500 profit-to-GDP ratio is at a 15-year low. Plus, there are governance issues with a few companies. Earnings don't justify the valuations and the average P/E of Nifty trails to 28.9x. If the economic growth does not pick up from here on, it may hurt the bottom line of companies. Corporate earnings haven't been very encouraging for all companies in a respective market capitalisation segment.

Besides some of the key factors that will influence Indian equities is GDP growth (which seems to have lost momentum of late), how international crude oil prices move, the inflation trajectory, union budget 2019 announcements, impact of farm loan waiver and increased MSP (Minimum Support Price) on fiscal deficit.

Besides even global macroeconomic factors; the US-china trade war, Brexit, changing regulatory goalposts in ecommerce and teething problems that hamper smooth implementation of new laws can impact the equities.

Hence, it will not be an easy task for wealth creation and volatility will be obvious. How the fund managers spots opportunities in these challenges while constructing the portfolio remains to be seen. Thus, the fortune of the IPMNCF will be closely linked to how well the fund manager and his team assess the scenarios and risk management measures they adopt.

[Read:  Best SIPs To Invest in 2019]

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This article first appeared on Certified Financial Guardian.  


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