How ICICI Value Discovery Fund Finds Value in the Market?

ICICI Value Discovery Mutual Fund is a standout in the world of mutual funds, known for its conviction in value investing. It focuses on finding undervalued stocks with strong fundamentals, offering investors long-term growth opportunities. Since its launch in 2004, the fund has consistently delivered solid returns, growing at nearly 20% CAGR.

With ₹50,154 crores in assets (as of Oct 2024), it remains the largest in its category. While it may underperform during growth stock rallies, the fund rewards patient investors with significant gains over time. In this blog, we’ll explore how the ICICI fund finds value in the market.

How ICICI Value Discovery Fund Finds Value in the Market?

ICICI Value Discovery Fund uncovers undervalued stocks through a “bottom-up” approach, focusing on companies with strong fundamentals but overlooked by the market. By analyzing metrics like earnings, book value, and management quality, the fund identifies stocks trading below their true value.

Here is a detailed overview of how the ICICI Value Discovery Fund finds value:

1.      Value Investing Strategy

ICICI Value Discovery Fund follows a value investing approach, focusing on stocks priced lower than their true worth. The fund uses a “bottom-up” strategy, analyzing individual companies based on their fundamentals like earnings, book value, free cash flow, and management quality.

The fund aims at selecting undervalued stocks to capitalize on market inefficiencies where stock prices don’t reflect their real value. With at least 65% of its assets in equity, it remains fully invested in equities and may also invest in offshore stocks. This method allows the fund to find hidden gems, even when the broader market struggles.

2.      Fundamental Analysis

ICICI Value Discovery Fund uses a deep dive into company financials to identify undervalued stocks. It focuses on key metrics like earnings, book value, cash flow, and dividend yield to find stocks trading below their true worth. The fund believes that, over time, markets will recognize and correct these undervaluations, leading to stock price appreciation.

Many stocks are undervalued due to factors like market overreactions, pessimism, or ignoring hidden assets such as surplus land or trademarks. The fund aims to invest in companies with strong management, long-term growth potential, and a competitive edge, patiently holding these stocks to unlock their true value over time.

Here’s a table showing key metrics used to pick stocks:

Metric	Description
Earnings	Company profits
Book Value	Net assets
Cash Flow	Cash generated from operations
Dividend Yield	Dividend payout relative to stock price

3.      Management quality assessment

ICICI Value Discovery Fund looks beyond financial metrics to evaluate the strength and capability of a company’s management team. The fund managers—Dharmesh Kakkad, Sharmila Dmello, and Sankaran Naren—believe that solid leadership is essential for executing successful business strategies and driving long-term growth.

They assess factors like decision-making skills, past performance, and the ability to navigate market challenges to ensure that they invest in companies with visionary leaders who can unlock hidden potential and steer the company toward sustainable growth. Strong management plays a crucial role in maximizing value for investors.

4.      Diversification within value stocks

ICICI mutual funds mitigate risk by maintaining a well-diversified portfolio across various sectors and market caps. With a large-cap bias (65-75% allocation), the fund also invests in mid-and small-cap stocks based on valuation attractiveness.

Additionally, the fund has international exposure, investing in Viatris Inc. and British American Tobacco. By diversifying across banking, pharma, telecom, and energy, the fund ensures a balanced and risk-managed approach to value investing.

Conclusion

In conclusion, ICICI Prudential Value Discovery Fund excels through its bottom-up investment strategy, emphasizing rigorous fundamental analysis and high-quality stock selection. Its focus on diversification and strong management has led to impressive returns, surpassing benchmarks. For more insights and to explore investing in such mutual funds, visit Dhan for comprehensive research and investment options.