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ICICI Prudential FMCG ETF: Low-cost route to play day to day consumption

ICICI Prudential Mutual Fund has launched an NFO for the FMCG sector. The NFO opened on July 20, 2021, and will close on August 2, 2021. With rising income levels, urbanization, digitization, and changing consumer behavior, the FMCG industry remains a key sector for investors. ICICI Prudential FMCG ETF will allow the investors to gain exposure to a diversified portfolio of companies in the consumer goods sector at a fraction of cost with a minimum investment of as low as Rs 1000. Read on to know more.

Key highlights

ICICI Prudential FMCG ETF is an open-ended Index ETF tracking the Nifty FMCG Index, comprising 15 stocks from the FMCG sector listed on the NSE.

The new ETF provides investors with a choice to take exposure to multiple facets of the FMCG sector through this product.

It will provide exposure to leading companies forming part of the 4th largest sector in the Indian economy – FMCG.

The ETF or exchange traded fund route is suitable for investors looking to gain exposure from the growing FMCG sector.

The minimum investment during NFO required is Rs 1,000.

Why FMCG

FMCG is the 4th largest sector in the Indian Economy. India’s FMCG market was valued at USD 110 billion in 2020. In less than a decade, the market size of the sector
had tripled. By 2025, the market is expected to grow to USD 220 billion (Source: www.ibef.org).

Sector fortunes

The FMCG sector witnessed a high growth quarter on the back of lower sales in the base quarter, which was marred by country wise strict lockdown. Though Q1FY22 also witnessed the adverse impact of a second Covid-19 wave & subsequent state wise lockdowns, the impact on supply chain was minimal with industry, government & trade channelâ€™s preparedness. Similar to previous lockdowns, consumption of some discretionary & out of home categories were adversely impacted.

Experts believe detergent, cosmetics, skin care products, juices, carbonated drinks would have seen muted sales during the quarter. On the other hand, packaged foods, edible oil, nutrition, immunity products would have continued the strong growth momentum. With the sharp increase in many commodity prices, most companies have taken price hikes to the tune of 5-20% in the last six months. After the one full year of aggressive new launches, the pace of new product development has de-accelerated. Top FMCG firms include Dabur, HUL, NestlÃ© & Zydus Wellness, Marico, ITC & VST Industries.

About Nifty FMCG

The NIFTY FMCG Index is designed to reflect the behaviour and performance of FMCGs (Fast Moving Consumer Goods) which are non-durable, mass consumption products and available off the shelf. The NIFTY FMCG Index comprises 15 stocks from the FMCG sector listed on the National Stock Exchange (NSE). This index has outperformed Nifty 50 index in 8 out of the last 11 calendar years. (Source: MFI Explorer, Data as of June 30, 2021).

Fund peers

There are at least 12 consumption oriented equity funds. The biggest among them is ABSL India GenNext, Mirae Asset Great Consumer, Sundaram Rural & Consumption, Tata India Consumer and BNP Paribas India Consumption. The only FMCG focussed product in thematic funds is ICICI Prudential FMCG Fund.

Fund-house speak

Nimesh Shah, MD & CEO, ICICI Prudential AMC said, â€œICICI Prudential FMCG ETF provides exposure to a basket of securities in the FMCG sector. Higher inclination towards branded products, rising purchasing power owing to higher disposable income, increased digitization and growing demand from rural areas, are expected to fuel the FMCG sector growth in India. One can say that this sector approximately accounts for more than half of consumer spending.â€

March-21 quarter: How did equity funds shuffle portfolios

Domestic mutual fund holding in companies listed on NSE went down to 7.23 per cent as on 31st March 2021 from 7.42 per cent as on 31st December 2020 aggregately by percentage. In value terms, mutual fund holding stood at Rs 14.30 lakh crore. But were there any big changes in MF portfolio holdings in the March 2021 quarter? Which stocks saw the biggest increase? Which stocks saw fund managers moving out of them? Here are the details, as per data from PRIME Database Group.

Highest MF ownership

Let us take a look at the top 10 companies with highest MF holding as on quarter ending 31st March 2021.

The list starts with Equitas (30.65%), KNR Constructions (30.43%), Federal Bank (29.78%), City Union Bank (28.97%), Techno Electric (28.48%), Crompton Greaves Consumer (27.90%), DCB Bank (27.38%), Greenply Industries (27.25%), Ashoka Buildcon (27.23%) and Persistent Systems (26.15%).

As you would have noticed this list does not really have a lot of so-called bluechips. It’s more into mid-caps or companies that are tending towards large-caps.

Jump in MF ownership

Now, let us take a look at the listed companies which saw the highest increase in mutual fund holdings in percentage terms in the last 1 quarter.

Wabco India saw the biggest % rise of 10.97 in March 2021 quarter in MF holding. Interestingly, the stock gained 19.02% in the same 90-day period.

Next is Esab India which saw a 8.54% hike in MF holding this quarter, coinciding with a 6% drop in stock price. Varroc Engineering saw 8% jump in MF holding, clearly a sign of funds smelling value because the stock dipped by 8.2% in this quarter.

Max Healthcare Institute saw MF hiking their stake by a combined 4.53%, as the stock gained over 40% in this period.

Hathway Cable was also a big beneficiary of value-based buying as MF holding went up by 4.36% even though the stock corrected by over 22%.

The other top stocks that ssaw significant % jump in MF holdings include SAIL (4.16%), Kirloskar Oil (3.79%), Tata Communications (3.60%), Techno Electric (3.30%) and Astec Lifesciences (3.29%). The MF stake hike in Astec happened in a quarter when the stock plunged 22%.

Fall in MF ownership

There were also listed stocks that saw the highest decrease in mutual fund holdings in percentage terms in the last 1 quarter.

PSU Engineers India Ltd saw MF cutting their stake by 5.71% in March 2021 quarter even though the stock remained unchanged.

Igarashi Motors India saw 5.4% MF stake drop, the second biggest. It happened at a time when the stock corrected over 19% in a quarter.

Just Dial’s 36% rise in share price in March 2021 quarter saw MFs liquidating their holdings, as their combined stake went down by 4.97%.

The story is same for Indian Energy Exchange which saw MFs decreasing stake by 4.88% even as the stock zoomed 46% in this 3-month time-frame.

Other stocks that saw substantial MF stake reduction included Burger King India (down 4.22%), Dixon Technologies (down 4.08%), EPL (down 4.00%), IFGL Refractories (down 3.95%), Siti Networks (down 3.93%0 and Aditya Birla Fashion (down 3.82%).

Biggest MF equity players

Everybody knows LIC is the biggest domestic investor in Indian equities market. But what about mutual funds? Let us take a quick look at the top 10 mutual funds which held the largest positions in companies listed on NSE by value as on 31st March 2021.

SBI MF invested in 295 stocks and held holdings worth Rs 2.52 lakh crore, securing the numero uno slot. SBI MF is followed by ICICI Prudential MF with holdings in 555 companies and the value of holdings is Rs 1.54 lakh crore. Third is HDFC MF with exposure to 330 stocks and the value of holdings is Rs 1.49 lakh crore. Nippon India MF is the 4th biggest with 555 stock exposure and value of holdings is Rs 1.11 lakh crore while UTI MF is the 5th biggest with Rs 1.01 lakh crore holdings across 295 stocks.

The others in the top-10 list are Axis MF (6th), Kotak Mahindra MF (7th), Aditya Birla Sun Life MF (8th), Mirae Asset MF (9th) and DSP MF (10th).

NFO review: ICICI Pru Nifty Low Vol 30 ETF FOF

If you’re looking to invest in a fund that limits the impact of market volatility by gaining exposure to the least volatile blue-chip companies across sectors in a simple and easy manner, consider investing in ICICI Prudential Nifty Low Vol 30 ETF Fund of Fund (FoF). The New Fund Offer (NFO) opens on March 23, 2021 and closes on April 06, 2021.

ICICI Pru Nifty Low Vol 30 ETF FOF

This is a fund of funds scheme which will invest in ICICI Prudential Nifty Low Vol 30 exchange traded fund (ETF). ICICI Prudential Nifty Low Vol 30 exchange traded fund (ETF) is a factor based smart beta ETF. A smart beta ETF uses a set of rules to invest in stocks of an index.

The underlying ETF in this case aims to mimic the movement of a basket of stocks called Nifty 100 Low Volatility 30 Index. The ETF was launched in 2017. It has assets of Rs 272 crore and costs about 40 basis points. It has given 1-year return of 59 percent and 3 year return of nearly 14 percent CAGR.

Minimum investment required for the fund of fund NFO is Rs 1,000.

Underlying index

The Nifty Low Vol 30 ETF is based on the Nifty 100 Low Volatility 30 index. The underlying index aims to measure the performance of the low volatile securities in the large market capitalisation segment. The stocks in this index are selected from the Nifty 100 index and should be available for trading in the derivative segment(F&O). But the selection of stocks and their weight in Nifty 100 Low Volatility 30 index are based on volatility.

The weights of the stocks are based on volatility which is measured as standard deviation of stock returns over a one-year period. The individual stock weight is capped at 3%. The top three sectors for the index comprises Software, Personal Care and Cement. The index is rebalanced on a quarterly basis. Stocks are ranked based on their volatility score. Top 30 ranked stocks with least volatility form part of the index.

At present, the index’s top weights are Power Grid Corporation of India, Dabur India, Ultratech Cement, Indian Oil Corporation, Bajaj Auto, NTPC, ACC, Pidilite Industries, Wipro and Tata Consultancy Services.

Performance of low volatility index

The Nifty 100 Low Volatility 30 index has provided returns between 12-16% CAGR over the last 5 years. This shows that lower risk need not mean lower returns.

Indian markets have witnessed volatility because of domestic and global factors over the years. e.g. Pandemic in 2020. The Nifty 100 Low Vol 30 Index has handled the volatility better than most indices. For instance, Nifty 100 Low Volatility 30 TRI has out-performed Nifty 100 and Nifty 50 indices 8 times in the last 13 calendar years.

Ideal investors

ICICI Pru Nifty Low Vol 30 ETF FOF is different from ICICI Pru Nifty Low Vol 30 ETF on two fronts.

One, the FoF allows investors without a demat account to invest in the smart beta ETF. To invest in the ETF, investors must have a demat account.

Two, the FoF allows investors the choice of either investing in Systematic Investment Plan (SIP) or lump sum route. The ETF does not offer SIP route facility.
In terms of costs, direct investors will incur 50 basis points (10 bps + 40 bps for underlying) and regular investors will incur 100 basis points (60 bps + 40 bps for underlying)

Fund-house speak

Nimesh Shah, MD & CEO, ICICI Prudential AMC said, â€œThrough ICICI Prudential Nifty Low Vol 30 ETF FOF, an investor gets access to a factor-based smart beta ETF that limits downside risk. Our aim is to help investors to limit the impact of market volatility and to gain exposure to the least volatile blue-chip companies across sectors in a simple and easy manner. The scheme allows investors without a demat account to invest in a smart Beta ETF with equity taxation through lump sum or SIP.â€