ICICI Pru Manager Rejig: Two Funds Downgraded

We downgraded Analyst Ratings for two of ICICI Prudential MF's equity funds, following a review of three, after the AMC reshuffled fund managers recently.
By Nazim Khan |  27-02-12 | 
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Nazim Khan is Site Editor for Morningstar.in.

ICICI Prudential Mutual Fund recently announced a change in fund managers for several of its funds.

Three of the funds were under our coverage for Analyst Ratings, our forward-looking, qualitative views on the fund's ability to perform in the long term, following which they were placed under review.

We retained our Analyst Rating for one fund while downgrading the other two. Here are highlights from the analyst reports.

ICICI Prudential Dynamic

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New Analyst Rating:

CIO Sankaran Naren, who managed this fund between September 2006 and February--he was followed by Sanjay Parekh--returns to manage the fund, a development Morningstar Analyst Vicky Mehta views as a positive development.

Naren maintains that he will operate the same investment strategy that he did on his first stint--relying heavily on sector plays and cash calls.

"The fund built up an impressive track record on Naren's watch, taking sector bets and aggressively trading his large-cap investments," writes Mehta.

Our anakyst continues to remain circumspect about the fund's cash-calls strategy, especially given the fact that since late 2009, the fund has employed a model-based approach to evaluate cash levels, as opposed to taking cash calls intuitively.

"While Naren did a good job with the former strategy, these are early days for the latter. We need to evaluate the model-based strategy over a longer time period, before confidence can be drawn from it," he adds. "At a parent level, there have been a number of exits from the investment team over the last 12 months, which is a bit disconcerting."

"This is by no means a bad fund; indeed, as its track record suggests, the fund has held investors in good stead. However, our conviction is restrained by the aforementioned factors. Hence for now, we retain the Neutral rating."

Read the complete Analyst Report.

ICICI Prudential Focused Bluechip Equity Retail

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New Analyst Rating:

Morningstar Analyst Srikant Subramanium believes former fund manager Prashant Kothari's exit is a big loss to both the 5-star fund and the fund company.

Incumbent fund manager Manish Gunwani was previously a portfolio manager with ICICI Prudential's portfolio management services (PMS) division since June 2010 and had built a brief but impressive record there.

Our analyst thinks the fund's strategy--where the manager identifies his best 20 ideas in the large-cap space and then picks stocks using a qualitative filter, while following a benchmark-conscious approach--worked well with the erstwhile manager but may be new ground for the incumbent.

"Other concerns also persist: The fund's success has been accompanied by a surge in assets, which may pose liquidity issues going forward. The erstwhile manager Kothari was already using Nifty futures to a small degree to provide liquid market exposure. An increasing use of derivatives can reduce the fund's distinctive profile," he adds.

A number of key exits in the investment house at the AMC also does not bode well for the overall stability and has also led to an increase in the workload for some members in the team.

"In light of these developments, we are downgrading the fund to a Neutral rating."

Read the complete Analyst Report.

ICICI Prudential Infrastructure

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New Analyst Rating:

After Sankaran Naren relinquished management duties for the fund after little over five years, Prashant Kothari exited the fund after helming it for a year, Yogesh Bhatt has been named the new manager. "We find the frequent change of guard at this fund's helm rather disconcerting," writes Subramanium.

Manager Bhatt has experience in tracking sectors such as consumer staples and retail as part of his research responsibilities, issues that the fund cannot invest in. Since Feb 2012, Bhatt has started tracking cement and capital goods sectors as part of his secondary sector responsibilities, but it takes time to build expertise.

"He has been an advisor for an India-focused offshore consumption fund, but that is of little relevance here. We are inclined to believe that Bhatt's skill set is not well suited for this fund," he adds.

"Another area of concern is workload--we note that Bhatt has been appointed as the portfolio manager for six funds, including this one. The magnitude of research and portfolio management responsibilities he shoulders can constrain his overall potential."

The 2-star fund already has a lukewarm historical performance to show for it but the fund's previous Analyst Rating of Neutral was merited by the presence of Prashant Kothari.

"However, with Kothari now gone, and given the aforementioned concerns, our confidence in the fund is severely dented. Hence, we downgrade the fund to a Negative rating."

Read the complete Analyst Report.

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