ICICI Prudential's Senior Fund Manager Mittul Kalawadia, who manages over ₹72,000 crore across major schemes including the Equity & Debt Fund, Dividend Yield Equity Fund, and iSIF Equity Long-Short Fund, is striking a strong note of caution amid current market conditions. According to reports from The Economic Times, Kalawadia warns that current valuations have already priced in future growth, leaving little margin of safety for aggressive new bets. The fund manager emphasizes that future growth is already factored into stock prices, limiting opportunities for new investments. "This is a contrarian opportunity, but unlike some previous contrarian calls, it is not one where investors can take very large bets," Kalawadia notes, highlighting that AI represents a structural change rather than a temporary phenomenon.
The fund's allocation between equity and debt is dynamically managed based on valuations and macroeconomic factors, with valuations being the primary driver. As reported by The Economic Times, over the last year, the equity allocation has moved between approximately 65% and 75%, currently sitting around 73-75%. The fund's mandate allows operation within a 65-80% equity range, with the allocation adjusted based on market conditions and valuation levels.
According to Kalawadia's assessment reported by The Economic Times, banking remains attractive from a valuation perspective, with certain discretionary consumption businesses also showing promise. The fund manager particularly likes select automobile and consumer discretionary businesses that can pass on costs in an inflationary environment. On the export side, pharmaceutical companies and manufacturers of manufactured goods are favored, as currency depreciation can enhance their global competitiveness. The fund maintains limited exposure to PSU banks due to concerns about sustainable profitability levels.
Regarding the IT sector, Kalawadia acknowledges that AI introduces additional uncertainty regarding future demand patterns, but notes that valuations have corrected and dividend yields have improved. As reported by The Economic Times, the fund has increased its IT allocation from being significantly underweight to closer to benchmark weight over the past eight to nine months. "AI is not a temporary phenomenon. It is a structural change and has the potential to be disruptive," Kalawadia explains, emphasizing that traditional disruption patterns suggest valuation multiples could continue to de-rate even if earnings remain resilient. "While there is a case for investing in the sector, position sizing becomes very important," he advises, drawing parallels to how traditional newspaper companies continue to operate profitably despite digital disruption but with compressed valuation multiples over time.
The dividend yield fund employs a systematic ranking framework combining dividend yield, operating cash flow yield, and sustainability metrics. According to The Economic Times, the portfolio is also constructed through a bottom-up approach identifying businesses undergoing positive cyclical change. The fund has reduced its allocation to REITs over time as valuations improved and yields compressed, making them less attractive relative to other equity opportunities available in the market.
