ICICI Prudential has made a name for itself with its string of well timed thematic fund launches. The latest from this contra-thinking champion is the new ICICI Prudential Quality Fund.
After 4 years of underperformance, quality has now started outperforming in recent quarters, as the economy shifts gears from early stage recovery/rapid growth to a maturing stage of relatively lower growth.
Lower quality companies which produce higher delta of earnings growth due to higher leverage during a rapid economic growth phase, tend to lose that delta as growth slows down. High RoE companies with high quality businesses tend to outperform as the economy eases into a slower growth trajectory.
Expect a narrower market going forward that the very broad-based rally we saw since the covid-recovery phase. Expect on balance, large caps to outperform mid and small caps over the next couple of years or so.
The new ICICI Prudential Quality Fund aims to follow “Quality-at-a-reasonable-price” as an investment philosophy, taking due care to buy only when stocks fit into its valuation framework. While the initial portfolio may be more large cap tilted, Ihab stresses that quality is found across cap sizes and as such the portfolio need not always be large cap focused.
Expect auto, auto ancillaries, pharma, select IT, consumer and financial sectors to be well represented in the initial portfolio. Unlike its benchmark (Nifty 200 Quality 30) which is very IT and FMCG heavy, this portfolio will likely be a lot more diversified across sectors.