Private & Confidential. Only for distributors and advisors of ICICI Prudential Mutual Fund
Market Cycles
Make market cycles work for you
Price to Book Value model
ICICI Prudential Equity Income Fund
ICICI Prudential Balanced Advantage Fund
ICICI Prudential Dynamic Plan
Contents
Equity Markets move in Cycles
Long Term trend of equity market is upwards.
However, there are cycles in the intermediate period
0
2000
4000
6000
8000
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
S&P BSE Sensex
1992 1994 19982002
2000
7000
17000
27000
2007 2008 2009 2010 2011 2012 2013 2014
S&P BSE Sensex
2007
2009
2013
Data Source: Bloomberg
Equity Markets move in Cycles
Data Source: Bloomberg
YOY Market Returns
53.5
3.6 7.3-0.6
-15.7
50.6
16.9
34.4
82.1
36.927.9
17.4
-20.8
-0.8
18.2
-16.5
64.0
-20.7 -17.8
3.5
72.9
13.0
42.546.8 46.9
-52.3
81.0
17.4
-24.7
25.6
9.0
-60.0
-40.0
-20.0
0.0
20.0
40.0
60.0
80.0
100.0
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Investor Sentiments
Is This How You Feel When The Stock Market Goes
Up Or Down?
ECG of Equity Markets
Data Source: Bloomberg
..the behaviour is rational because equity markets
have been unpredictable in the short run
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
Da
ily
Re
turn
s (%
)
Daily Returns Of BSE Sensex
Factors Effecting Equity Markets
Market CyclesGlobal Factors
Political Events
Corporate Earnings
Geopolitical Development
Growth Trend
Monetary/ Fiscal Policy
Investor Sentiments
Domestic Macros
Can you make these cycles work for you?
Make Market Cycles Work For You
Track investments Regularly
Book Profits when Markets are up
Reinvest when markets are down
Needs Expertise
Involves Transaction
Cost
Higher Tax Liability
Emotions may hamper
decisions
Buy Low
Sell High
Alpha
Power of Buy Low, Sell High
Date
S&P BSE Sensex
Levels
Active Buy and
Sell Strategy
Cumulative Value
of Re. 1 invested
01 January 1990 783 buy 1
20 October 1992 3050 sell 3.89
27 April 1993 2070 buy 3.89
16 September 1994 4617 sell 8.69
03 July 1995 3182 buy 8.69
22 February 2000 5883 sell 16.06
28 October 2002 2834 buy 16.06
31 December 2007 20286 sell 114.92
27 February 2009 8891 buy 114.92
27 October 2010 20005 sell 258.56
23 July 2012 16877 buy 258.56
31 October 2014 27866 426.49
If someone were able to precisely predict market cycles the return would
have been 426x vs. 36x with passive strategy
Data Source: Bloomberg
Power of Buy Low, Sell High
Even if only 20%, 35% or 50% of the portfolio was effectively used with appropriate Buy Low, Sell High strategy, one would have made handsome gains
-10.00
10.00
30.00
50.00
70.00
90.00
110.00
130.00
150.00
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Re
turn
s in
mu
ltip
le t
ime
s
Returns 50% Profit
Booking: 141x
35% Profit
Booking: 97x
20% Profit
Booking: 64x
Portfolio % actively used 20% 35% 50%
Returns 64 times 97 times 141 times
Data Source: Bloomberg
Investor sentiments makes it next to impossible
..but this is not easy to do
GreedFear
• In Bull Markets, the lure of quick wealth is difficult to
resist
• While in Bear Markets, investors panic and sell equity at
rock bottom prices
What is the Solution?
How Do You Time The Market and Simultaneously Generate
Returns out of Market Cycles?
A model that allows Buying Low and Selling
High while limiting human emotions
Dynamic P/BV Model
• The model suggests reducing equity exposure when market
valuations are expensive and increasing equity exposure
when market valuations are cheap
• In the process the model enables buying stocks at lower
prices and selling them at higher prices
1.751.5
1.251
1.5
2.5
3
1.75
0.75
2 2 2 2 2 2 2 2 2
JAN FEB MAR APR MAY JUN JUL AUG SEP
P/BV ModelCurrent Price to Book Value Fair Value Range
Increase Equity Exposure
Reduce Equity Exposure
Why Price to Book Value?
• Price-to-book value ratio (P/BV) is calculated by dividing the stock price to its book value per share
• Price to book value is less volatile as compared to price to earnings ratio
• Price to book value is better equipped in gauging intrinsic value of a company
• Book value is a balance sheet item, thereby more reliable than Earning Ratio
Does P/BV model help
0
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10,000
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25,000
30,000
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Jul-
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Sensex
P/BV
2.0
P/BV
4.1P/BV
1.6
P/BV
6.1
P/BV
4.1
P/BV
2.46
P/BV
2.91
Historically, P/BV has been most prudent indicator to judge market cycles
based on valuation
P/BV
4.2
P/BV
2.60
P/BV
3.5
P/BV
5.1
Data Source: Bloomberg
Time Tested Model
Ratios I Pru BAFI Pru
Dynamic
Average Returns 13.88 12.13
Beta 0.61 0.86
Alpha 6.32 4.57
Excess Return
for each unit of
Market Risk
10.30 5.29
ICICI Prudential Balanced Advantage Fund and ICICI Prudential Dynamic Plan are being
run on P/BV model since 2010. Both the funds have consistently outperformed and
delivered significant ALPHA
3 Year Rolling Returns
Month
ICICI Prudential
Balanced
Advantage Fund -
Reg - Growth
ICICI Prudential
Dynamic Plan -
Growth
CNX Nifty Index
Oct 13 9.03 4.86 1.11
Nov 13 10.32 6.41 1.94
Dec 13 10.49 6.57 0.91
Jan 14 11.48 7.69 3.41
Feb 14 13.01 9.32 5.58
Mar 14 12.88 9.53 4.74
Apr 14 12.94 10.10 5.31
May 14 15.49 13.93 9.71
Jun 14 15.83 16.12 10.45
Jul 14 15.87 16.47 12.18
Aug 14 19.82 23.14 18.50
Sep 14 20.11 22.56 17.22
Oct 14 20.26 21.96 16.02
Past Performance may or may not be sustained in future. Ratios based on 3 year rolling returns, Risk Free Rate to calculate Alpha taken as
8.5%.
NFO Period: 18th November to 2nd December 2014
Presenting investment solutions based on
Price / Book Value Model
That aims to
Buy Low - Sell High
Solutions based on P/BV Model
• ICICI Prudential Equity Income Fund
• Equity levels: 20% – 40%Conservative
• ICICI Prudential Balanced Advantage Fund
• Equity Levels: 30 – 80%Moderate
• ICICI Prudential Dynamic Plan
• Equity Levels: 65 – 100%Aggressive
ICICI Prudential Equity Income
Fund
ICICI Prudential Equity Income Fund is an open ended equity fund that
aims to:
To generate regular income through investments in fixed income
securities and using arbitrage and other derivative Strategies.
To generate long-term capital appreciation by investing a portion of
the Scheme’s assets in equity and equity related instruments.
Instruments Indicative Asset Allocation allocations
(% of total assets)
Maximum MinimumEquity & Equity related instruments 75 65
Derivative including Index Futures,
Stock Futures, Index Options, Stock
Options etc
50 30
Debt , Money market instruments &
Cash35 25
ICICI Prudential Equity Income
Fund
•Dynamic management of duration based on interest rate outlook.Debt
•Use in-house Price to Book model to maintain the equity allocation with no market cap/style bias.Equity
•Exploit arbitrage opportunities by buying stocks in the spot market and selling corresponding futures in matching positions, thereby capturing positive spread between the prices.
Arbitrage
Investment Strategy
Unique Fund Structure
Debt Securities
Equity Arbitrage
Opportunities
Net Long Equity Exposure
Regular Income Potential Capital
Appreciation
Equity Taxation (Tax efficient returns)
60-80% of the
net assets
20-40% of the net
assets
Tax Efficiency Illustration
Particulars Traditional fixed
return
investment
options
ICICI Prudential
Equity Income
Fund
Pre-tax return
required for
traditional fixed return
investment options to
meet the return of
Equity Income Fund
Amount Invested 100 100 100
Taxable Gain 9 9 13.63
Value plus Gain 109 109 113.63
Applicable tax rate 33.99% 0% 33.99%
Tax Liability 3.05 0 4.63
Post-tax gross value 105.95 109 109
Post-tax return 5.95% 9% 9%
This table is only to illustrate the method of computing capital gain tax payable by an investor. The calculation given above is to ascertain the
implication of capital gains tax on investment in equity oriented schemes and other investment options. Past performance may or may not be
sustained in future. This calculation is based on prevailing tax laws and is applicable only in case of resident investors..
*Fund Manager for overseas securities – Shalya Shah
Type of scheme An open ended equity scheme
Plans Direct Plan and Regular Plan
Options Cumulative, AEP Option(Appreciation and Regular) and Dividend
(Reinvestment & Payout Option)
Dividend Frequencies Monthly, Quarterly and Half Yearly
Minimum Application Amount Rs.5,000/- plus in multiple of Rs.1
Minimum Additional Application
Amount
Rs. 1,000/- plus multiple of Re. 1
Minimum Redemption Amount Rs. 500/- and in multiple of Re. 1
Exit Load For investments upto 18 months – 1% of applicable NAV
Benchmark Index 30% CNX Nifty + 40% CRISIL Liquid Fund Index + 30% CRISIL Short
Term Bond Fund Index
Fund Manager* Equity Portion - S.Naren and Chintan Haria
Debt Portion - Manish Banthia
Scheme Features
ICICI Prudential Balanced
Advantage Fund
Launched on December 30, 2006, ICICI Prudential Balanced
Advantage Fund is an open ended equity oriented fund that aims at
generating risk-controlled equity linked returns.
• The fund benefits out of market volatility by maintaining fair equity
allocation levels based on market valuations.
• The fund allows investing in equity markets with a conservative
‘’buy low-sell high’’ approach.
• Follows daily rebalancing of portfolio
• The fund also aims to provide monthly tax free dividends.
(Dividend is subject to availability of distributable surplus and
approval from Trustees)
ICICI Prudential Balanced
Advantage Fund
•Blend of Large and Midcap Stocks
•Top four sector allocation in line with the benchmark
Stocks/
Sectors
•Manage net equity allocation between 30% –80%based on in-house Price/Book Value model
•Balance 0 – 35% invested in debt instruments to generate stable returns
Asset Allocation
•Derivative exposure used to hedge/rebalance the equity portion and maintain net equity allocation as suggested by the model
•Derivative exposure helps the fund maintain equity status and benefit from equity taxation
Derivatives
Investment Strategy
Manages Equity Exposure between 30% –80% range based on P/BV model
In Overvalued Market, can decrease equity
exposure to 30%
Inherits the characteristics of a
Hybrid Scheme
In Fair Value Market, can maintain balanced
equity and debt exposure
Inherits the characteristics of a
Balanced Fund
In undervalued Market, can increase equity allocation up to 80%
Inherits the characteristics of an
Equity Fund
Equity Taxation
Maintains Equity Fund status even when equity
level goes below 65%
Month Desired Equity
Level based on
P/BV Model
Gross Equity
Level
Derivative
Position
Net Equity Level
Month 1 42% 67% 25% (67-25) 42%
Month 2 68% 68% 0% 68%
Month 3 50% 72% 22% 50%
Month 4 30% 66% 36% 30%
Gross Equity level
are maintained
above 65%
Historic Asset Allocation Pattern
42%
47%
52%
57%
62%
67%
72%
77%
15000
17000
19000
21000
23000
25000
27000
29000
Ap
r-1
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ay-1
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ug
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Jul-
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Au
g-1
4S
ep
-14
Sensex Levels Net Equity Exposure
The Line Chart above shows actual monthly net equity
allocations in the scheme against Sensex levels
When You Invest in ICICI
Prudential Balanced
Advantage Fund
Tax Efficient
A Tax Efficient Investment Solution
No Capital Gains Tax After 1 Year
Dividend In The Hands Of Investor Is Completely Tax Free
Monthly, Quarterly And Annual Dividend
Option Available
Scheme Features
Type of Scheme Open-Ended Equity Fund
Plans Regular & Direct; Options – Growth & Dividend
Minimum Application Amount Rs. 5,000 (plus in multiple of Re.1)
Minimum Additional Application Amount Rs. 1,000 (plus in multiple of Re.1)
Minimum Redemption Amount Rs. 500 (plus in multiple thereof)
Entry Load Not applicable
Exit LoadUpto 18 months from allotment 1% of applicable NAV
more than 18 months Nil
Fund Manager
Equity: Mr. Manish Gunwani, managing this scheme since Jan
2012 & has overall 17 years of experience and Ashwin Jain,
managing this scheme since Oct 2014 & has overall 7 years of
experience
Debt: Manish Banthia, managing this scheme since Nov, 2009
& has overall 9 years of experience
Benchmark Index Crisil Balanced Fund Index
SIP / SWP / STP Available (STP : In)
ICICI Prudential Dynamic Plan
Launched on October 31, 2002, ICICI Prudential Dynamic Plan is an open-ended
diversified flexi-cap opportunities fund. The fund follows an active cash strategy
and uses derivatives, which may help to mitigate downside risks while capturing
the upside.
• The flexibility of higher allocation to cash in an expensive/volatile market is
one of the distinguishing features of the Fund. The Fund is structured with
intent to benefit from volatility and different cycles in equity markets.
• The fund has the flexibility of higher allocation to cash in an expensive
market and higher allocation to equity during inexpensive market enables
buy low and sell high strategy in a disciplined way.
ICICI Prudential Dynamic Plan
• Invests across market capitalisation (large, mid and small) based on attractiveness of valuation across the segments
• Contrarian Sector calls
Stocks/
Sectors
• Manage net equity allocation between 65% –100%based on in-house Price/Book Value model
• Balance 0 – 35% invested in debt instruments to generate stable returns
Cash Calibration
• Derivative exposure used to limit downside risksDerivatives
Investment Strategy
Fully Valued
Defensive:
Cash Calls, Value picks
Aims to participate in market rallies with controlled
risk
Undervalued
Aggressive:
Aims for 100% equity
participation
Aims to outperform
market
Volatile
Contra:
Buy Low, Sell High, Cash calls, invests
in large caps
Aims to Outperform
Market
Market
Strategy
Performance
Cash Calibration
2.5
2.6
2.7
2.8
2.9
3
3.1
3.2
3.3
3.4
3.5
0
10
20
30
40
50
60
70
80
90
100
Equity (%) Debt (%) Nifty PBV
ICICI Prudential Dynamic Plan equity levels vis-à-vis Nifty P/BV
ICICI Prudential Dynamic Plan
Type of Scheme Open-Ended Diversified Equity Fund
Plans Regular & Direct; Options – Growth & Dividend
Minimum Application AmountRs. 5,000 (plus in multiple of Re.1)
Minimum Additional Application Amount Rs. 1,000 (plus in multiple of Re.1)
Minimum Redemption Amount Rs. 500 (plus in multiple thereof)
Entry Load Not applicable
Exit LoadUpto 12 months from allotment
1% of
applicable
NAV
more than 12 months Nil
Fund Manager
Mr. Sankaran Naren, managing this scheme since Feb 2012 & has
overall 23 years of experience.
Mr. Mittul Kalawadia, managing this scheme since Feb 2012 & has
overall 7 years of experience.
Benchmark Index CNX Nifty Index
SIP / SWP / STP Available (STP : In)
Mutual Fund investments are subject to market risks, read all scheme related
documents carefully.
Nothing contained in this document shall be construed to be an investment advice or an
assurance of the benefits of investing in the any of the Schemes of ICICI Prudential Mutual Fund
(Mutual Fund). All data/information used in the preparation of this material is specific to a time and
may or may not be relevant in future post issuance of this material. ICICI Prudential Asset
Management Company Limited (AMC) takes no responsibility of updating any data/information in
this material from time to time. The AMC (including its affiliates), ICICI Prudential Mutual Fund,
ICICI Prudential Trust Limited and any of its officers, directors, personnel and employees, shall not
liable for any loss, damage of any nature, including but not limited to direct, indirect, punitive,
special, exemplary, consequential, as also any loss of profit in any way arising from the use of this
material in any manner. The recipient alone shall be fully responsible/are liable for any decision
taken on this material.
Disclaimer