About ICICI Energy Opportunities
The NFO of ICICI Energy Opportunities Fund opened for subscription on July 02, 2024, and will close on July 16, 2024.
The scheme aims to generate long-term capital appreciation by investing in equity and equity-related instruments of companies engaged in or benefiting from the growth in traditional and new energy industries and/or sectors, as well as allied businesses.
The energy theme encompasses a wide range of industries, such as oil & gas, bio-energy value chain, and lubricants. The ICICI Energy Opportunities Fund will have the flexibility to invest across energy value chains.
For the sake of comparison, and to get an idea about what this theme may entail, here’s a look at the recently launched (in Feb 26, 2024) SBI Energy Fund. Here’s a list of the stocks which SBI Energy fund is holding.
VALUATIONS OF THE ENERGY STOCKS
The share of Energy companies in the NIFTY (Ex- RIL) – as per Market Cap (Rs. Crs.) is 8% whereas the share of Energy companies (ex- RIL) as per Profit (Rs. Crs.) is about 19% which could imply that these companies are trading at lower valuations compared to other sectors.
Energy companies in India have historically traded at a discount compared to index valuations. Currently, the Nifty Energy Index is trading at a 38% discount to the Nifty in terms of the P/E ratio, compared to the historical discount of 46%. Similarly, the P/BV ratio of the energy index is at a 35% discount to Nifty valuations, whereas the historical average has been a 50% discount to broader indices.
Why CICI Energy Opportunities Fund?
Energy demand is expected to rise over the next decade, due to factors, such as
- Climate change,
- Premiumization,
- Focus on manufacturing,
- Increasing per capita income, and
- New-age technology such as AI.
Energy is the cornerstone of industrial growth and economic development. With the ongoing transition towards renewable energy and the government’s focus on achieving net-zero emissions, the energy theme offers significant growth potential. Through this scheme, investors can gain access to a diversified portfolio of companies across the energy value chain.
WHAT SHOULD AN INVESTOR DO
This is a long-term, decadal investment theme. Investors with a long-term perspective should consider investing in this scheme, ideally with a five-year horizon for it to realize its potential. It’s advisable to start with a Systematic Investment Plan (SIP) and wait for the fund to establish a sustainable track record before making a lump sum investment. This scheme is suitable for experienced investors who are aware of the higher risks involved.
KEEP IN MIND, LIKE IN CASE OF ALL NFOs. The lumpsum amount collected in the NFO period will be deployed over the next 3 months.
ICICI Energy Opportunities Funds Investment Universe
- POWER ANCILLARIES- Energy EPC, Power T&D value, Heavy Electrical Equipment, Energy efficiency plays (manufacturing electrical equipment’s for production, transmission & distribution of energy)
- OIL VALUE CHAIN- Upstream (Oil Exploration & Production), Integrated refining and marketing (Refineries & Marketing), Standalone refining (Refineries & Marketing), downstream petrochemicals (Chemicals & Petrochemicals companies) and base oil processors (companies engaging in activities such exploration, production, distribution, transportation and processing of traditional & new energy), lubricants, oil field services (Oil Equipment & Services)
- GREEN ENERGY- Companies undergoing energy transition, Solar value chain, Wind power value chain, Hydrogen value chain, Battery value chain (companies making components of new energy), Bio energy value chain (companies involved bio energy value chain), alternate fuel (companies making components of new energy)
- GAS VALUE CHAIN- Gas transmission (Gas Transmission/Marketing), LNG terminal (LPG/CNG/PNG/LNG Supplier), City gas distribution (LPG/CNG/PNG/LNG Supplier)
- POWER VALUE CHAIN- Coal producer (Coal), power generation, power transmission, power trading
The ICICI Energy Opportunities Fund Scheme will also look to invest in overseas energy companies, provided there is room available for overseas investments by the mutual fund industry.
FUND MANAGERS: Sankaran Naren and Nitya Mishra will manage the scheme, and the benchmark for the scheme will be Nifty Energy Total Return Index (TRI).
OPPORTUNITY SIZE IN ENERGY SPACE
The shift towards renewable energy and the government’s net-zero emissions target for 2070 present substantial growth opportunities in the energy sector. These initiatives and reforms are set to create numerous opportunities for both existing and new players in the energy value chain.
- India’s energy consumption has more than doubled in the last two decades. Currently, India is the fourth largest energy consumer globally. However, its share of global energy consumption is just about 6%, while the US is 16% and China is 26%.
- India’s per capita energy consumption is 1/3rd of global average. China’s consumption is 4.4x of India and Korea is 9.5x of India. With India expected to be the third largest economy in the world, its per capita energy consumption could also witness significant rise
- Power demand expected to grow strongly in future and expected shortages maybe observed mainly during non-solar hours. This may warrant continued focus towards the sector by the Government to reduce the deficit gap
- India’s journey, wherein we moved from Agri to services and now shifting towards Manufacturing, which may warrant for higher demand for energy
- In terms of absolute GDP, India is today ranked fifth in the world and is expected to be ranked third by the year 2030. However, for that kind of GDP mass, the low energy consumption on a per capita basis, shows a huge unmet demand opportunity.
- Energy Demand by upcoming technologies such as AI e.g One of the most famous chatbot and virtual assistant’s daily power usage is equal to 1,80,000 U.S Households
- The other big opportunity is the extent of EV (electrical vehicles) penetration. In India, the current EV penetration is just about 2%, compared to the global average EV penetration of 17.5%. That is the one area where a lot of work is happening on the city infrastructure front.
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