ICICI Pru Tax Plan Gr 100354

We think ICICI Prudential Tax Plan needs time to prove itself.

Manager Chintan Haria started running ICICI Prudential Tax Plan in May 2011 after a series of changes at the fund’s helm. CIO Sankaran Naren ran the fund from Oct 2005 to Feb 2011, followed by a brief stint by manager Munzal Shah, who departed the fund house in May 2011. This is Haria’s first stint managing money, and while he’s been at ICICI Prudential since 2005, prior to Jan 2011 he was an equity dealer. Haria assumed research responsibilities at the beginning of 2011 and subsequently started managing equity funds in May 2011. This is a rapid rise. Clearly, these are early days for him, both as an analyst and portfolio manager.

Pleasingly, and despite the changes, there is consistency in the process. The fund continues to be run with an unconstrained multi-cap strategy that was adopted by erstwhile manager Naren in early 2009. Haria takes big stock- and sector-specific bets, often against the grain. He draws upon Naren’s views on the macroeconomic scenario when taking sector bets, which we view positively, given the latter’s expertise in the same. When selecting stocks, Haria treats the recommendations of his analyst team as his initial reference point, and further filters down stocks using a combination of absolute and relative valuation measures. Haria’s stock-picking criteria is flexible, allowing for both growth- and value-styled picks. However, valuations play an important role as he avoids investing in expensive stocks/sectors even in his growth picks. In the small/mid-cap space, a longer investment horizon of two to three years is typically adopted. Here, Haria buys into stocks that his analysts perceive have large upside potential and is willing to patiently wait for the investment case to play out. The large-cap portion of the portfolio is traded quite aggressively, though, and incorporates a market-sentiment overlay to determine the portfolio’s tilt. We caution that this aspect of the strategy is somewhat risky and can result in additional timing risk in the fund.

Performance shows the multi-cap strategy introduced in early 2009 has been working well. Haria has gotten off to a decent start here, too—the fund’s risk-adjusted returns since he took the helm are in line with the norm. The investment approach adopted by Haria appears to complement the skill set he built as a trader, and he continues to draw support from CIO Naren and his investment team. That said, it’s very early days here and we would like to see more of Haria's ability to execute the process. The investment team has also been weakened due to a number of exits. In the last 18 months, the fund house lost the services of four senior investment personnel in the investment team. We would also like to see stability in the team before more confidence can be drawn. For now, the fund retains its Neutral rating.