Naren’s Contra Fund Joins a Crowded Hunt for Laggards

ICICI Prudential Mutual Fund closes the ICICI Prudential Contra Fund NFO on October 12, 2026, as Sankaran Naren, its CIO, says the book will buy only underperformers. Five listed contra funds already hold about Rs 75,903 crore. The style that waits for neglected stocks is arriving as a packed product shelf.

Naren, executive director and chief investment officer at ICICI Prudential AMC, wants the new scheme in midcaps and smallcaps, where he says lagging sectors are easier to find. Index multiples tell a harsher split: large-caps are the cheaper tape, and small-caps still trade rich against their own history.

A Crowded Shelf of Contra Funds

Contra funds buy stocks and sectors that have lagged. Over the past year the category fell 6.62 percent, against an 11.24 percent drop in the Nifty 50 and a 6 percent drop in the Nifty 500. Over three years it compounded at 10.33 percent a year, ahead of the Nifty 50’s 4.18 percent and the Nifty 500 TRI’s 8.73 percent. That relative cushion is why distributors now have a product to sell.

SBI Contra Fund is the giant, at Rs 47,589 crore as of August 31, 2026, on AMFI-linked disclosures, or 62.7 percent of the five listed books. Invesco India Contra Fund is next at Rs 20,644 crore. Kotak Contra Fund holds Rs 5,511 crore. Two 2026 newcomers already sit on the same shelf.

THE LISTED CONTRA BOOKS

Bandhan’s book is already Rs 1,713 crore, weeks after allotment, and its regular growth plan was down 2.86 percent from launch as of October 6. Motilal Oswal’s book is Rs 446 crore. ICICI Prudential is the third new contra NFO in five months, not a lonely idea.

The AMC’s own account treated the close as a last sales day, which is the ordinary way a popular NFO is run, not the way a neglected corner of the market usually looks.

Out of favour doesn’t always mean out of opportunity.

Discover how ICICI Prudential Contra Fund looks beyond market sentiment to evaluate what others may have overlooked.

NFO closes today!

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— ICICIPruMF (@ICICIPruMF) October 12, 2026

SEBI Opened the Door in February

This launch was hard to file until the regulator rewrote the box. ICICI Prudential already runs a value scheme, the fund formerly sold as Value Discovery. For years an AMC could offer a value fund or a contra fund, not both. That cap is why the contra shelf stayed thin even when SBI’s book was huge.

SEBI’s February 26 circular on scheme categories (HO/24/13/15(2)2026-IMD-RAC4/I/5764/2026) lets a fund house offer both, if portfolio overlap stays at or under 50 percent. The same circular lifted the equity floor for contra and value schemes to 80 percent of assets, from 65 percent. Existing schemes had six months to line up names and limits.

ICICI Prudential’s new fund is the first test of that dual licence at India’s second-largest AMC. Motilal Oswal and Bandhan moved in the same window. The product boom is a rule change as much as a market call.

THE CONTRA NFO WAVE AFTER THE RULE CHANGE

1. February 26, 2026: SEBI lets AMCs run value and contra together, with an 80 percent equity floor and a 50 percent overlap cap.
2. May 8, 2026: Motilal Oswal Contra Fund opens its NFO, and closes on May 22.
3. August 10, 2026: Bandhan Contra Fund opens, and closes on August 24.
4. September 28, 2026: ICICI Prudential Contra Fund opens at Rs 10 a unit.
5. October 12, 2026: The ICICI NFO closes; BSE StAR keeps lumpsum orders open until midnight.

A BSE notice to members sets a tentative allotment date of October 15. The scheme then reopens for sale and repurchase within five business days of allotment. Until that book is built, investors are buying a process, not a portfolio.

Only Underperformers Make Naren’s List

Naren draws a line between cheap and out of favour. Contrarian, in his telling, is a three-to-five-year laggard, sometimes a one-year laggard, that still clears research. It can be value, growth, or quality, depending on which style has been left behind.

We see contra opportunities in the mid and smallcap space, as there are many sectors where the underperformance has been pronounced. But the key principle is that we will only buy underperformers.

Sankaran Naren, ED and CIO, ICICI Prudential AMC

Quality, he said, lagged for six years and therefore belongs on a contra list now; in 2020 it would not have. Power equipment was a contra idea five or six years ago and is not one now, because the sector has already outperformed. On IT he has called the de-rating a “contrarian valuation call” and left open whether it is a value trap, with AI still an unresolved risk to software services demand.

He has also said small-cap multiples were lifted by heavy flows into mid- and small-cap funds, and that the useful set is names that have gone nowhere for three to five years. That is a stock screen, not a bid for the Nifty Smallcap 250 itself.

Portfolio construction is organised under CLOUD, which Naren walked through in the launch film: Calculate (do the research), Leverage (treat debt with care, a 2008 lesson), Ownership (prefer names institutions do not already own versus the benchmark), Upside (the idea has to be large enough to wait for), Disruption (walk away when the business is being broken for good).

THE CLOUD FILTER

• Calculate: Research the name before the contrarian tag is allowed to drive the buy.
• Leverage: Treat high debt as a veto more often than a bargain, a habit Naren dates to 2008.
• Ownership: Low institutional holding versus the benchmark is treated as a plus.
• Upside: The recovery has to be large enough to justify years of waiting.
• Disruption: Structural damage, the landline or print-media kind, is not a cycle to fade.

In the same film he put the style in one mechanical line: when sellers outnumber buyers, price is low; when buyers outnumber sellers, price is high. A contra NFO that closes with webinars, missed-call numbers, and a distributor calendar is the second half of that sentence. The discipline, if it holds, has to happen after allotment, in names the rest of the category is not already forced to own.

Where Cheapness Shows Up on the Tape

September was ugly across the board. The Nifty 50 fell 6.06 percent and the Nifty 500 lost 5.88 percent. The Nifty Midcap 150 dropped 7.09 percent. The Nifty Smallcap 250 fell 3.12 percent, less than half the Nifty 50’s decline. From October 1 the Nifty 50 was up 0.44 percent. Naren called that spread a gap in both valuations and sentiment.

Trailing multiples on October 9 still put the bargain in large-caps, not in the rungs he is most keen to hunt. The Nifty 50 traded at a P/E of 19.27, 14.6 percent below its 52-week high. The Nifty Midcap 150 was at 28.05. The Nifty Smallcap 250 was at 34.03, only 5.3 percent below its 52-week high.

TRAILING MULTIPLES ON OCTOBER 9

A September note from Motilal Oswal, on 12-month forward P/E rather than trailing, made the same split against history. The Nifty 50 was at 17.6 times, 16 percent below its long-period average of 20.9 and 29 percent below its peak. The Nifty Midcap 150 was at 25.8 times, 4 percent above its 24.8 average. The Nifty Smallcap 250 was at 23.6 times, 27 percent above its 18.5 average and only 6 percent below its peak.

Nifty IT, a quality sleeve that has been out of favour, traded at 17.97 times with a 19.8 percent decline over the year to October 9 and a 29.1 percent drawdown from its 52-week high. Oil and gas printed a P/E of 10.31, and PSU banks 7.32. Those are the unloved prints on the open tape. They are also, in the main, large-cap and sector indices, not a mid- and small-cap sweep.

Scheme details for the new contra fund still allow buys across large, mid, and small caps. Naren’s present emphasis is lower down the ladder. The index math is the constraint he has to pick through, name by name, once the money is in.

SBI Contra Still Runs a Large-Cap Book

Scale changes what “contra” can mean. SBI Contra, launched on July 14, 1999, held 85 stocks in the September 2026 filing, with banks at 20.2 percent of the book. HDFC Bank was 4.79 percent and Kotak Mahindra Bank 3.15 percent. A Rs 47,589 crore vehicle needs names that can absorb tickets. Liquid large banks do that job.

SBI CONTRA MARKET-CAP MIX

• Large caps: 49.36 percent of the portfolio.
• Mid caps: 25.06 percent.
• Small caps: 13.28 percent.
• Others: 12.3 percent, including cash and non-equity sleeves.

Almost half the country’s largest contra fund is large-cap paper. Naren can still hunt smaller laggards because his book starts empty. That edge lasts until inflows make the new scheme look like the old one. Bandhan’s Rs 1,713 crore in a few weeks is the warning on speed.

Anyone who already owns SBI Contra, Invesco, or ICICI Prudential’s value scheme is stacking similar ideas. SEBI’s 50 percent overlap cap is a fund-house rule, not a household one. Two contra funds plus a value fund can still rhyme in the same banks, the same beaten-up IT names, and the same cyclical laggards.

The Exit Load Lasts One Month

The scheme information document files the fund as an open-ended equity scheme following a contrarian strategy, benchmarked to the Nifty 500 TRI, with units at Rs 10 during the offer. Sankaran Naren, Dharmesh Kakkad, and Sakshat Goel are named as managers. The riskometer is Very High. There is no lock-in.

THE OFFER TERMS

• Minimum application: Rs 1,000, in multiples of Re 1, with SIPs from Rs 100 for daily, weekly, fortnightly, and monthly cycles.
• Asset mix: 80 to 100 percent in equity following the contra strategy, 0 to 20 percent in other equity, 0 to 20 percent in money-market and liquid instruments, 0 to 20 percent in gold and silver ETFs, and 0 to 10 percent in InvITs, with overseas securities allowed up to 35 percent of net assets.
• Exit load: 1 percent if redeemed or switched within one month of allotment, then nil.
• Plans: Direct and Regular, with Growth and IDCW.

Naren’s own warning is time. A laggard can keep lagging after the fundamentals turn, and he has asked investors to be mindful that the market may take years to notice. A one-month load does not encode that wait. It encodes an easy exit once the NFO shine fades.

The useful test after October 15 is whether the new book looks like the mid- and small-cap underperformers he described, or like a smaller copy of the Rs 47,589 crore giant that already owns the liquid names. Until the first portfolio is out, that is still an untested claim.

Disclaimer: This article is news reporting and analysis of a new-fund offer and related market figures, and it is for information only. It is not investment advice, a solicitation to subscribe to ICICI Prudential Contra Fund or any other scheme, or a forecast of returns. Readers should consult a SEBI-registered investment adviser or a qualified financial planner, and read the scheme information document and key information memorandum, before putting money to work. Fund sizes, index multiples, NFO dates, and portfolio mixes reflect the scheme papers, AMFI-linked disclosures, and index readings cited here, and they can change after allotment.