A look at 2 debt funds from ICICI Prudential AMC

By Himanshu Srivastava |  22-10-19 | 
 
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Himanshu Srivastava is a Research Analyst with Morningstar. He would like to hear from you, but cannot give financial advice.

ICICI Prudential Credit Risk Fund

  • Morningstar Analyst Rating: Neutral
  • Fund Managers: Manish Banthia and Akhil Kakkar
  • Analyst: Himanshu Srivastava
  • Rating Date: Aug 2019

The team on the credit side has managed to run the business as usual after fund manager and head of structured and credit investments Rahul Bhuskute relinquished management responsibilities on 6 Jan 2018. Manish Banthia, who has been the comanager here since November 2016, now leads the fund.  Despite the change in manager last year, the investment process and approach continues to be in line with the fund’s investment proposition. The fund is characterised as a credit fund, with its positioning leaving little room for duration plays. Here the team prefers investing in stable companies having higher certainty of returns than targeting uncertain higher returns.

Hence, security selection, portfolio construction, and liquidity management are of paramount importance. The investment approach is research driven and combines qualitative aspects with quantitative analysis. The credit team scouts for companies that have strong management with proven track records and that are backed by financially robust promoters. It prefers companies that have displayed good corporate governance standards. This is followed by rigourous quantitative analysis in which various financial ratios are considered. A credit is added in the investment list only after getting an approval from the risk management team.

While constructing the portfolio, Manish Banthia plies a bottom-up approach here. He looks for securities that may benefit from certain events such as domestic acquisition and promoter financing. He also hunts for securities that may be rated lower but are potential candidates for an upgrade. The process has been executed well so far, and we expect it to continue in the same vein going ahead.

We believe that the signs are positive and the fund is headed in the right direction. The process-driven approach has helped Banthia in managing this fund so far. Having said that, the credit risk Morningstar Category is a relatively risky space. Hence, we would like to see the strategy plied in a similar fashion across market cycles going ahead before building conviction.

The Indian fixed-income market has been facing severe headwinds on the back of several instances of downgrades and defaults.  Hence, the timing couldn’t be riper to emphasise laying greater focus on credit risks while making investments, especially credit funds, where the strategy is to invest in lower-rated securities. To this fund’s credit, it has managed to ride these turbulent times more comfortably than many of its industry peers. For now, we retain a Morningstar Analyst Rating of Neutral.

ICICI Prudential Medium Term Bond Fund

  • Morningstar Analyst Rating: Nuetral
  • Fund Managers: Manish Banthia and Shadab Rizvi
  • Analyst: Himanshu Srivastava
  • Rating Date: Aug 2019

ICICI Prudential Corporate Bond was renamed ICICI Prudential Medium-Term last year. The fund also witnessed a change in its category as well as portfolio manager. After taking over the fund’s reins in November 2013, Rahul Bhuskute relinquished its management responsibility on 5 Jan 2018. Manish Banthia, who has been the comanager here since November 2016, is now in charge.

This fund has been positioned as a conservatively managed credit fund, and Bhuskute’s extensive experience in the credit space made him an apt fit for the role. Banthia, too, is an old hand in managing funds, however, he has largely managed duration-based strategies. This is his first stint at managing a fund where taking credit bets is the major theme. Having said that, the team on the credit side along with Banthia has managed to run the business as usual after Bhuskute’s exit. This has been made possible as over the years, with Bhuskute’s help, the fund house has been able to establish a well-defined process for credit strategies. It also has a structured credit team in place now, which provides vital support to Banthia in managing credit-oriented funds.

The fund is a part of the medium duration Morningstar category. While the investment mandate of this category allows the funds to maintain a duration between three and four years, it is more flexible with regards to credit profile as it allows investment across the credit spectrum.

Although Banthia maintains that the fund would mostly stick to its billing of a conservatively managed credit fund, he may use the given flexibility as a tactical play depending on the prevalent scenario. In our opinion, to effectively execute such an investment approach requires a different skill set.

Banthia has adequate support from his team to run such a strategy, and he has done well since taking over its mantle. We believe that the signs are positive and the fund is headed in the right direction.

The process-driven approach has helped Banthia in managing this fund so far. However, we would like to evaluate the execution of the investment strategy under Banthia over longer time frames to build our conviction. For now, we retain a Morningstar Analyst Rating of Neutral.

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