Prudential ICICI Growth Plan: Avoid fresh exposures

Recommendation: Avoid fresh exposures

Suresh Krishnamurthy

FRESH investments in Prudential ICICI Growth Plan can be avoided considering the performance of the fund in the last year. However, the existing investors can hold on to their investments for now and look to evaluate their options after considering the performance of the fund in the next few months. The net asset value of the fund is Rs.** per unit.

While the performance of the fund in 1999 was quite promising, in the year 2000, the fund's under performance compared to S&P CNX Nifty is quite stark. The under performance appears to be an outcome of the enhanced risk profile of the fund during 2000. The higher risks taken by the fund in a declining market has led to a sharper decline in value compared to the Nifty. In fact, the change in risk profile is material enough for investors to take notice in the context of assessing the future fund performance.

Suitability: The risk involved in an investment in the fund can be considered to be more than the market average. The fund has also taken exposures to a few highly volatile stocks and as such a degree of uncertainty regarding future performance vis--vis the market also exists.

In this backdrop, only investors who are comfortable with such risks can consider holding on to the fund. Investors who would want to remain invested in a low-risk fund can look to reduce their exposures to the fund over time. However, considering the state of the markets and the higher risk profile of the fund this may not be the right time. Having endured such high risks in a falling market, investors can stay on to pare down exposures when the market is on an upswing.

Investors can opt for the dividend option for now. A change to the growth option can be considered after any changes in the forthcoming budget regarding taxation of dividends distributed by equity funds.

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Portfolio allocation: In terms of sectoral exposures, the nature of the fund's holdings is fairly concentrated. At the end of December 2000, the fund has invested close to 45 per cent of its net assets in stocks from sectors such as software, telecom and media. Even among software, telecom and media stocks exposure to highly volatile stocks such as Aftek Infosys, Mukta Arts, HFCL and Moser Baer India are fairly high.

In terms of individual stocks, the fund is relatively more diversified. At the end of December 2000, the top five exposures account for 30 per cent of the fund's net assets and the top 10 exposures account for 50 per cent of the net assets. The top exposures of the fund are Sterlite Optical, Reliance Industries, Infosys Technologies, HFCL and ITC.

The fund has also consistently held a higher percentage of the net assets in cash over the past few months. The cash position which was in marginally excess of 16 per cent at the end of June 2000 has come down slightly to around 13.55 per cent as at the end of December 2000.

Background: The fund was launched in July 1998 and declared dividends of 18 per cent in June 1999 and 10 per cent in March 2000. Over a two-year period, the fund has generated returns of 33 per cent on a compounded annual basis.