ICICI Pru Value Discovery Fund: Focusing on High Potential Undervalued Stocks

ICICI Prudential Value Discovery Fund is a value-centric fund that looks for stocks that are currently undervalued, meaning they are trading at a discount to their fair or intrinsic value. Over the years, this fund has built a strong reputation by carefully selecting high-potential, undervalued stocks across different market caps and sectors. This strategy has led to impressive growth, with a compound annual growth rate (CAGR) of about 20.6% since its inception in August 2004. The fund's focus on finding value opportunities and using smart investment strategies has resulted in significant gains for its long-term investors. Its ability to consistently perform well over longer periods has made it increasingly popular among investors. With assets under management of Rs 48,988 crore (as of November 2024), ICICI Prudential Value Discovery Fund is currently the largest scheme in the Value Fund category.

It's important to note that ICICI Prudential Value Discovery Fund has at times experienced extended periods of underperformance, especially when value stocks fall out of favour, as seen during the bullish market phase of 2016 to early 2020, which was dominated by growth stocks. However, later the fund demonstrated its ability to bounce back strongly and cover up the missed upside. By quickly shifting its focus from overvalued stocks to undervalued ones, ICICI Prudential Value Discovery Fund can reward patient long-term investors with significant returns. Notably, the fund showed resilience during the market crash of 2020 and actively participated in the ensuing bullish phase, outperforming its benchmark and many of its peers in the Value Fund category by a substantial margin.

Over the past five years, ICICI Prudential Value Discovery Fund has achieved a CAGR of 27.1%, compared to a growth of 20.3% in its benchmark, the Nifty 500 - TRI. An investment of Rs 10,000 in the fund five years ago would now be worth Rs 33,176, while a similar investment in its benchmark would have grown to Rs 25,205.

ICICI Prudential Value Discovery Fund ranks among the top quartile performers in the Value Fund category over various time frames. After a long period of underperformance from 2016 to early 2020, the fund has greatly benefited from the strong recovery in value investments and has shown excellent performance in recent years. On a rolling return basis, though the fund has trailed the category average in the last 1 year, over the longer 2 years and 3 years, ICICI Prudential Value Discovery Fund has outperformed the benchmark Nifty 500 - TRI by about 6.5-7.5 percentage points, and has also surpassed many of its peers significantly. Even in the longer 5-year and 7-year periods, the fund has maintained a clear lead over the benchmark and the category average.

The fund's strategy of avoiding momentum-driven investments and focusing on large-cap stocks helps lower risk and allows it to outperform both the benchmark and its peers. As a result, ICICI Prudential Value Discovery Fund stands out in terms of risk-adjusted returns. Its volatility, measured by Standard Deviation (12.04%), is the lowest in its category and much lower than the benchmark. Additionally, its Sharpe ratio (0.39) is among the best in the category and significantly higher than that of the benchmark.

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What is the investment strategy of ICICI Pru Value Discovery Fund?

ICICI Prudential Value Discovery Fund is a typical value-style fund that endeavours to invest in stocks of companies that are substantially undervalued compared to their fair valuation. The fund's investment strategy is based on the fact that the market doesn't always accurately align a stock's price with its intrinsic value. It adopts a 'Bottom-up' strategy, to identify and select undervalued stocks after evaluating them on several parameters such as historic performance, earnings, book value, free cash flow, and dividend yield. Additionally, the fund manager also takes into account factors such as management quality, business competitiveness, and growth prospects of companies in the investment evaluation process.

ICICI Prudential Value Discovery Fund is mandated to invest at least 65% of its assets in equity & equity related instruments while the balance can be in debt and cash. It also has the flexibility to invest some portion in offshore equities. The fund strictly sticks to its investment mandate and prefers to stay fully invested in equities. ICICI Prudential Value Discovery Fund aims to maintain a well-diversified portfolio with the flexibility to invest across market caps and sectors. The fund maintains a large-cap bias, wherein it allocates around 65-75% of its assets. It also holds substantial allocation to mid-cap and small-cap stocks depending on the attractiveness of the valuation in each of these segments.

ICICI Prudential Value Discovery Fund's portfolio is usually diversified across 60 to 70 stocks. As of November 30, 2024, the fund held 55 domestic stocks along with a couple of overseas stocks. The top 10 holdings accounted for nearly 48.1% of its total assets. HDFC Bank is currently the top equity holding in the fund's portfolio, followed by ICICI Bank, Reliance Industries, Infosys, and Sun Pharma. The fund currently holds an allocation of about 3.3% in overseas equities holding stocks of companies such as Viatris Inc. and British American Tobacco (US), along with ADRs/GDRs of Vodafone Group Plc. It holds most of its stocks with a long-term view and has recorded a moderate turnover rate of 55-60% in recent months.

In the last two years, ICICI Prudential Value Discovery Fund has benefited the most from its holdings in NTPC, ONGC, Sun Pharma, Bharti Airtel, Lupin, and TVS Motor Company that have collectively contributed around 27% to its absolute gains. The fund has also gained from its exposure to ICICI Bank, HCL Technologies, Bharat Petroleum, Hero MotoCorp, SBI, Axis Bank, LIC Housing Finance, ICICI Lombard General Insurance, The Great Eastern Shipping Company, and L&T, among many others.

ICICI Prudential Value Discovery Fund's portfolio is well-diversified across Cyclical, Defensive, and Sensitive sectors. Around 22.2% of its assets are allocated to stocks in the Banking sector with another 7.4% in Finance. The fund also holds substantial exposure to Pharma, Consumption, Auto, Petroleum, and Infotech having allocation in the range of about 6-9%. The top 5 sectors account for about 54.3% of its assets.

Is ICICI Pru Value Discovery Fund suitable for my investment goals and risk tolerance?

ICICI Prudential Value Discovery Fund strictly follows its value investment strategy. Its ability to identify undervalued sectors and select quality undervalued stocks within these sectors has been highly rewarding for long-term investors. By focusing on undervalued stocks, the fund provides a reasonable margin of safety, helping to reduce downside risk during volatile and bearish market conditions. At the same time, its emphasis on stocks with strong fundamentals positions it well to benefit during market uptrends.

ICICI Prudential Value Discovery Fund typically maintains a well-diversified portfolio that includes stocks from various market caps and sectors. This approach helps it find value opportunities from a wide range of stocks. By being benchmark agnostic and not following benchmark weights, the fund has the flexibility to shift its investments from one sector or market cap to another if any segment becomes overvalued. Additionally, its preference for large-cap stocks enhances portfolio stability and helps ensure steady returns. The fund also benefits from the expertise of its experienced fund manager, Mr Sankaran Naren, who is well-known for his contrarian investment style and skill in identifying value.

ICICI Prudential Value Discovery Fund is suitable for investors with a preference for a true-to-style Value Fund for the defensive portion of their portfolio and having an investment horizon of at least 5-7 years.

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Note:  This write up is for information purpose and does not constitute any kind of investment advice or a recommendation to Buy / Hold / Sell a fund. Returns mentioned herein are in no way a guarantee or promise of future returns. As an investor, you need to pick the right fund to meet your financial goals. If you are not sure about your risk appetite, do consult your investment consultant/advisor. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. Registration granted by SEBI, Membership of BASL and certification from NISM no way guarantee performance of the intermediary or provide any assurance of returns to investors.

The securities quoted are for illustration only and are not recommendatory.

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DIVYA GROVER is the co-editor for FundSelect, the flagship research service of PersonalFN. She is also the co-editor of DebtSelect. Divya is an avid reader which helps her in analysing industry trends and producing insightful articles for PersonalFN’s popular newsletter – Daily Wealth letter, read by over 1.5 lakh subscribers.
Divya joined PersonalFN in 2019 and has since then used stringent quantitative and qualitative parameters to analyse funds to provide honest and unbiased research to investors. She endeavours to enable investors to make an informed investment decision and thereby safeguard their wealth.

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.

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Quantum Information Services Private Limited (QIS) was incorporated on December 19, 1989.

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