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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

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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

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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

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-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