Templeton India Growth Fund -- Way behind its peers?

Aarati Krishnan

Recommendation: Templeton India Growth Fund(TIGF) has been one of the equity-oriented funds which has weathered the recent meltdown in the markets well.

Between March 31 and April 19, the scheme's Net Asset Value (NAV) lost 5 per cent, while the BSE Sensitive Index lost 7 per cent. Top performing equity funds such as Alliance Capital Tax Relief and Birla Advantage Fund have had 15 to 17 per cent shaved off their NAV, over this period. But though a good performer in a bearish market, the fund's performance has been less than impressive in bull markets. Launched in September 1996, the fund's investment performance has been outpaced by the majority of its peers over the past four years.

Despite the fund's resilience in recent market conditions, given its track record, opportunity costs of remaining invested in this fund, could be high. Investors for whom this is the sole mutual fund investment, can consider switching part of their exposures to other mutual funds which have showed a better performance. Among the diversified equity funds with moderate exposures to technology stocks, Kothari Pioneer Bluechip Fund, Prudential ICICI Growth Fund and Kotak Mahindra's K-30 could be good alternatives.

Portfolio Status: From inception until the last quarter of 1999, the Templeton India Growth Fund had fairly heavy weightages in commodity and cyclical stocks, in keeping with its ``value investing'' philosophy. The fund had thus borne the brunt of the sharp downrating in the valuations of these stocks over the past four years with its NAV declining from Rs. 10 per unit, to a low of Rs. 6.90 in April 1999.

Thereafter, the fund staged a recovery, helped by a resurgence in select cyclicals and the shift in portfolio focus. From a portfolio invested mainly in cyclicals and commodity stocks, the TIGF switched partly to technology stocks, in the last quarter of 1999. By March 31 the scheme was invested up to 33 per cent, in software stocks, with another 5 per cent in telecom and media stocks.

The rest of the exposures were divided between a large number of industry segments such as chemicals, metals, financial services, oil and gas and automobiles. The portfolio has comprised of companies with good management quality with good fundamental backing. But the current portfolio is not very different from other diversified funds which do not subscribe to the ``value investing'' philosophy.

Fund Performance: TIGF's investment returns of 11 per cent since inception(annualised) leave a lot to be desired, given that the equity market conditions over this period presented ideal opportunities for active portfolio management. In the first three years after inception, until April 1999, the fund's investment performance lacked consistency. The NAV hovered at Rs. 6.90 per unit by April 1999, after several ups and downs.

Despite its focus on cyclicals and commodities, the fund did not fare impressively during the resurgence in these stocks in the March-June 1999 quarter(the NAV appreciated by 13 per cent in the quarter while Sensex stocks appreciated by 44 per cent in that quarter). Over the past one year, from the low of Rs. 6.90 per unit, TIGF has managed to stage a sharp recovery returning around 112 per cent till date(current NAV Rs. 14.65 per unit). But despite this, the fund would not rank among the top quartile of equity oriented funds, in terms of investment performance.

Facts: The TIGF is among the medium sized equity-oriented funds in operation, with a net asset size of Rs. 203 crores by February end. The fund subscribes to a value investment philosophy, in which it tries to identify stocks which appear to be undervalued in relation to their fundamentals. The fund offers systematic investment and withdrawal plans, apart from facility for one-time investment and charges an entry load of 2 per cent for fresh investments. Minimum investment size is Rs. 2000.