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Aashish
Somaiyaa, Sr. Vice President & Head - Retail Business, ICICI Prudential AMC
shares his perspective on the AMC’s latest offering—ICICI Prudential Bluechip
Equity Fund.
 What kind of feedback are
you getting from your distribution partners on your NFO especially at a time
when there is so much uncertainty surrounding the Indian and US economies?
Distributors
are definitely showing excitement and interest in carrying this product to
their clients. It has a place in every client's portfolio. While uncertainty is
a defining characteristic of any capital market, this is a product that needs
to be looked at from a sound and grounded process rooted in asset allocation,
goal planning and diversification across currency and economies.
Investors mostly look at the
exchange rates before investing in any overseas fund. Is this the right time to
take exposure to the dollar?
In
the last one month, when I have been speaking to Indian investors about the
need for investing in dollar assets via the ICICI Prudential US Bluechip Equity
Fund, they have all been telling me, it’s a great product, excellent concept
but we will make the move when the US dollar is cheaper. Now I don’t understand
why a view on the rupee is so critical in making this investment decision.
If
I had a portfolio with 50% allocation in dollar assets like US stocks, and 50%
allocation to rupee assets like Indian stocks, and then I had to make a further
allocation, I would be absolutely right in worrying about the exchange rate of
switching from rupee to dollar and vice-versa. But here I am with every single
rupee of mine in rupees (pun intended), and I am worrying "Uh oh, if the
rupee appreciates I will lose out, so let me not buy dollar assets now."
Instead of worrying about the rupee appreciating I should be losing sleep over
the fact that I don’t have any asset in dollars, what will happen to me if
rupee depreciates further.
If
the view is that the rupee will appreciate, that means you have a positive view
on Indian equity markets. So then I must see money moving into Indian equities,
but that’s not happening either.
So
what is the view? Let me tell you, there is no view. So if you are not
investing in dollar assets because you have a strong view that the rupee will
appreciate, you must create assets in rupees. But that too is not happening!
One school of thought is
that if Indian markets are giving to 10%-15% returns, there is no need to
diversify outside India. What are your views?
The
only way to look at this is diversification. Let me have assets in some
proportion in both asset classes. If I have a positive view on the Indian
rupee, I have more allocation in India. In our case we have a staggering 100%
allocation to India, and mind you, the rupee is depreciating real fast. If I
have a negative view on the Indian rupee then I have more allocation to dollar
assets. But in our case it is zero. If I have no view, I have some proportion
in both—depending on my future goals. But we have no allocation to dollar
assets. And I know for sure that two of our most important life goals depend on
the dollar— foreign education for the child and international vacation for the
wife.
The
theories of finance in some way suggest that the long-term trend of the
currency is determined by interest rate and inflation differentials. There is
on average 6% to 8% difference in interest rates and inflation between us and
the USA. And hence the rupee has been on a steady declining trend. I believe at
Independence the currency was 7.5 to a dollar, in 1990 it was Rs 20 to a
dollar, post liberalisation in 1991, it was 30 rupees to a dollar and so on and
so forth.
When
making any decision, it is important to focus on the cost of not making a
decision, as much as one focuses on the costs of making that decision. And then
as someone famously said, not making a decision is a decision in itself—that's
not free of cost either.
How much are you planning to
raise from this fund?
I
think nowadays NFOs are all about introducing new concepts or ideas that help
add value in the process of advising clients and provide some benefits on
return enhancement and risk mitigation of some sort. Gone are the days when
NFOs used to be a marketing blitz. Some of the products like Discovery, Focused
Bluechip, Regular Savings Fund etc are today multiple times of what we
collected in the NFO because they were sound scalable product ideas and it is
irrelevant to discuss what came in the NFO. ICICI Prudential US Bluechip is a
sustainable scalable idea which I see becoming big for us in the next 2 years.
Having said so our product team led by Himanshu and investments team led by S
Naren have received a lot of compliments for the idea and the unique product
construct for giving Indians exposure to some of the leading global companies
listed in the USA. So, I have a 2-year target of $300m to $400m in this product
but no short-term target.
How are you marketing this
fund?
Marketing
of the fund has been more through newspaper ads, media coverage, outdoor,
online promotions, etc. Like I said, the entire focus is more to explain the
need for this product in a client's portfolio than to get each and every person
invested in it. For long-term scalability of products, clarity of positioning
is key. We need to tell advisors what place this should take in an investor's
portfolio and what it aims to do for the investor on risk and return
parameters.
What need will it serve in
the investor’s portfolio?
In
India when one invests into equity for the first time, one starts with the ‘A’
group of BSE. On a global calibration of stock markets, the USA is the so
called A group. It has over 30% of world market cap and this product provides
access to that set to Indian investors.
Lot
of companies that derive their growth from India and other emerging markets are
actually not listed here, and to participate in their growth, we have to invest
where they are listed.
The
product provides geographic diversification and currency diversification which
brings in complementarity in the investor’s portfolio. We have seen that the US
market has very low correlation to the Indian market and in simple terms, I can
say I have seen data which shows that there are many years like last year when the
Indian market has done badly and the US market has done relatively better. Not
only that, we have noted that in these years, our currency has also depreciated.
Investing
some part of our portfolio in dollar assets is a must. The US being a developed
market is less volatile than our stock market - a case in point being 2008 when their market
fell less than ours despite the crisis having originated there.
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