The Centre has put the pedal to the metal on growth with a special focus on accelerating infrastructure spending through the announcements in the latest Budget. This stance emboldens our view in favour of industrials and materials sectors (for their undervaluation), financials (for being a play on macro revival/loan growth) and PSUs (for their re-rating prospects).
Thus, investors with a high risk appetite can consider ICICI Prudential India Opportunities, a thematic fund whose concentrated portfolio can be used to play the imminent cyclical upswing in the economy.
While the economy picks up pace, investors can take advantage of market volatility by investing a lump sum, in two or three tranches, in the fund.
However, it is important to time the entry as well the exit. Thematic funds must form part of your ‘satellite’ portfolio and should never be used to save for long-term goals.
Turnaround in sight
The Covid-induced economic morass is beginning to end. Due to the pandemic impact, defensives such as healthcare and IT were the clear winners last year, while cyclicals such as banking and financials were the key laggards. This year and beyond will likely see a change in sectoral leadership.
From a purely equity perspective, the renewed focus on capital spending to boost infrastructure spend is a key positive from the Budget. Plus, domestic manufacturing has already got a leg-up from the ambitious PLI (production-linked incentive) schemes.
The RBI expects FY22 GDP to grow by 10.5 per cent from an estimated contraction of 7.7 per cent in FY21.
In this backdrop, a large-cap-biased portfolio with beaten-down cyclicals, industrials and under-valued PSUs should do well. It is also important to stay away from over-valued segments. With allocations to power, banks, telecom services, non-ferrous metals, and oil and gas, ICICI Prudential India Opportunities, an open-ended equity scheme investing in special situations theme, can be a good investment. The two-year-old fund, managed by industry veteran S Naren, has given 6.5 per cent returns since launch on account of the long gestation nature of its investment strategy.
Portfolio and strategy
The scheme usually has 30-35 stocks in its portfolio and is suitable for investors who would like to benefit from a concentrated stock selection (top 10 stocks form 64 per cent of the portfolio).
While the fund has the flexibility to invest across market-caps, it has maintained more than 70 per cent allocation in large-caps. Bharti Airtel (10.67 per cent) is the top holding at present. Airtel, a beneficiary of the data demand across the globe, is poised to grow in light of sector consolidation and waning competitive intensity.
NTPC, Tata Power and PowerGrid are expected to benefit from the Centre’s push for reforms in the power sector.
Metal and mining stock picks, such as Hindalco, is a beneficiary of improving non-ferrous global demand outlook; Coal India offers good dividend yield, and is a vehicle to benefit from higher coal demand. Vedanta benefits from the improvement in commodity prices.
ONGC and GAIL will power the broadening of economic recovery and benefit from rebound in oil/gas prices. Corporate lenders such as Axis Bank and ICICI Bank demonstrate good asset-liability management, while having high CASA (current account, savings account) franchises. Plus, the stress on banking balance sheets seem to be stabilising.
The fund tends to maintain an exposure of 90-95 per cent to equities.
Waiting for the themes to play out, the fund follows a buy-and-hold strategy. Hence, the portfolio turnover stands at a moderate 44 per cent.