ICICI Pru Life turns to IT, pharma after risky telecom bet payoff

Fund managers at India's largest private sector life insurer, ICICI Prudential Life Insurance, are turning their attention to the technology and pharmaceutical sectors following bumper payoffs from a contrarian bet on the country's telecommunications sector. ICICI Pru Life's Chief Investment Officer, Manish Kumar, said he kept buying telecoms shares this year even as a bruising price war and plunging profits forced several other investors to cut their exposure to the sector.

Kumar's investment was unorthodox as insurers' exposure limits give them little elbow room to experiment with significant changes in asset allocation, which means their shifts in positioning are generally very modest. “I don't think we have taken as strong a contrarian bet in any of the sectors," Kumar said.

India's telecoms companies have been hurting all year as Reliance Jio, the mobile market's newest entrant backed by India's richest man Mukesh Ambani - rolled out freebies and slashed costs for data plans.

Analysts say Jio's surprise decision to raise tariffs last month signals an end to the competitive price-cutting war. As a result, shares in top mobile carrier Bharti Airtel are near their highest levels in a decade, while those of IDEA Cellular are near eight-month highs.

ICICI Pru Life, whose assets under management grew about 16 per cent in that period and now total Rs 1.3 lakh crore, increased its exposure to the telecom sector by 80 basis points to 7.3 per cent, even as other mutual funds cut their exposures. The insurer has 54 per cent of its assets in debt, driven by regulatory requirements and preferences of its unit-linked policyholders.

Kumar said he has cut the weighted-average maturity of his bonds portfolio over the past 12-18 months, as a bond rally in India that has lasted three years comes to an end over concerns about inflation, fiscal slippage and tighter monetary policy.

He is now turning to information technology and pharmaceutical stocks, which he thinks are attractively valued after several quarters of struggle.

India's more than $150 billion information technology sector has grappled with cuts in client spending in United States, their biggest market, while regulatory concerns and pricing pressures have hit pharmaceutical firms.

Since it hit a record high in March 2015, the Nifty IT Index has fallen about 16 per cent. The NSE Nifty has gained about a fifth in that period. The Nifty Pharma Index has declined nearly 30 per cent from its record high in April 2015.

"Now, at least given the kind of correction that we've seen in those sectors, we believe the time has come to relook at these sectors. But, we may have to be a little patient in these sectors," Kumar said.