ICICI Prudential Innovation Fund NFO

ICICI Prudential Mutual Fund has launched an NFO, which is open for subscription from April 10th, 2023, and closes on April 24th, 2023.

Investment Objective: To generate long-term capital appreciation by predominantly investing in equity & equity-related securities of companies and units of global mutual funds/ETFs that can benefit from innovation strategies and themes.

Investment Strategy: The scheme will invest a minimum of 80% in companies adopting innovation strategies and themes & Overseas Securities adopting innovation strategies and themes.

The ICICI Prudential Innovation Fund NFO scheme will be both sector and market-cap agnostic. The scheme may invest up to 20 percent of its net assets in ADR / GDR / Foreign securities / Mutual Funds / ETFs.

Fund Manager: Anish Tawakley and Vaibhav Dusad

For Overseas investment - Sharmila D’Mello

Benchmark: Nifty 500 TRI

Fund Management Process:

• The ICICI Prudential Innovation Fund NFO follows active management, expecting to generate alpha over the long term.

• The selection criteria are majorly from the Nifty 500 TRI Index

• The portfolio is constructed after considering the following parameters by including two types of stocks:

• Growth/Quality stocks

• Businesses with premium valuation due to their Innovation

• Above-average revenue and profitability growth

• Companies with low debt, asset-light business models, higher margins, and stronger free cash flow generation.

• Value stocks

• Cash cow business trading at a discount

• The margin of safety principle

• High Dividend Yield

• The ICICI Prudential Innovation Fund NFO scheme may invest across the market cap, basis suitable opportunities.

• There may be some exposure to innovation stocks like Artificial Intelligence, Driverless cars, Cloud computing, etc., across geographies.

ICICI Prudential Innovation Fund NFO Investment Process:

• Sector/Theme Analyst: Analyzing trends in specific sectors or themes.

• Trend Evaluation: Fund managers evaluate trends along with analysts.

• Stock Universe: Shortlisting board stock universe based on innovation trends.

• Qualitative Assessment: Companies will be assessed on qualitative parameters like management execution track record, strategic partnerships, etc.

• Quantitative Assessment: Companies will then be assessed on Free Cash Flow, Operating Cash Flow, etc.

• Sector Allocation: weightage for stock/sectors are decided based on macro factors like government policies, global environment, etc.

• Portfolio Construction: Finally, based on stock or sector weightings, the portfolio is constructed.

Opportunity:

What are the undercurrents favoring the Innovation theme?

1. Pandemic: The covid-19 pandemic made it important that supply chains have immense flexibility to minimize risk and increase mobility. Due to the requirement for more participants in the supply chain, there is a constant requirement for Innovation.

2. Geo-Politics: A lot of uncertainties crept up during the Ukraine-Russia wars and the US-China tensions. This led to the hoarding of goods and restrictions on supply and export. This has encouraged many countries to look for better options to reduce dependencies and continue functioning. Better options have created a wide scope for continuous Innovation.

3. Inflation: Many countries are looking to control inflation by domestically manufacturing products. This leads to better Innovation in terms of overall reducing the cost of production but at the same time not compromising on the quality of products.

Myth - Innovation is completely technological.

Fact - Innovation can be as simple as the invention of the wheel to complex/modern techniques such as DNA re-arranging.

Innovation starts from agriculture and goes up to Hotels and Leisure. One can find Innovation in Banks & Finance, Building Materials, Cement, Oil and Gas, Media Entertainment, Real Estate, and many more.

India has a robust ecosystem in place for nurturing Innovation.

As countries look to become increasingly self-sufficient regarding resources, the theme may do well going forward globally & domestically.

Based on our analysis, we have observed the following pros and cons

ICICI Prudential Innovation Fund NFO Pros:

• Focuses on companies with above-average profitability and revenue growth.

• Detailed research for stock selection.

• Only Growth and Value style investing, wherein it ensures that the stocks it chooses has a strong cash flow.

• Completely Innovation based.

• Active fund management has the ability to generate superior returns.

• The innovation growth story fuels the investment objective of this fund.

ICICI Prudential Innovation Fund NFO Cons:

• Defining “Innovation” can become subjective sometimes.

• Sectoral funds have very high volatility compared to other mutual fund categories.

• Can underperform for relatively short to medium terms.

• Higher levels of drawdowns when compared to other funds with similar risk ratios.

• ICICI Prudential Mutual Fund is the second-largest asset management company in India. Most of ICICI’s offerings are top-rated and ranked which helps instill confidence and reliability in investors.

• The current scenario looks very favourable for the “Innovation” theme. In the current time, individuals are demanding top-quality products which are cost-effective at the same time. Delivering top-quality products at reasonable prices requires innovating or inventing new techniques of production.

• Moreover, this fund follows Growth/Quality and Value Stock investing. This ensures that only stocks with strong business, strong cash flows and low debt are taken as a part of the fund’s portfolio.

• The AMC will take the necessary steps for identifying potential trends in various sectors/themes.

• An investor with a very high-risk appetite and an investment horizon of more than 7 years can allocate a decent amount of investments to this category. At the same time, ensure that the portfolio has proper diversification to optimize the portfolio risk.

Disclaimer: Mutual Fund investments are subject to market risks, read all scheme related documents carefully. The past performance of the mutual funds is not necessarily indicative of future performance of the schemes. The Mutual Fund is not guaranteeing or assuring any dividend under any of the schemes and the same is subject to the availability and adequacy of distributable surplus. Investors are requested to review the prospectus carefully and obtain expert professional advice with regard to specific legal, tax and financial implications of the investment/participation in the scheme.