Franklin India Growth Fund: Hold and Avoid fresh exposures

Recommendation: HoldAvoid Fresh Exposures

Suresh Krishnamurthy

FRESH investments in Franklin India Growth Fund need not be contemplated now, as its performance since inception has not been impressive. Even in the last three months, the fund's performance lagged the BSE 100. This may, however, be too early to judge the Fund since it has not even completed a year since launch. Investors can, however, stay with the Fund. The NAV is Rs 6.41.

Suitability: The fund's mandate is to invest in growth stocks. This is riskier than investing in a more diversified portfolio. The extent of exposure of an investor to growth stocks through this fund, other funds and through direct investing is, however, a factor of each investors' risk preference.

The investment strategy of Templeton as a mutual fund has been to book profits regularly. Such a strategy, compared to a strategy of buy-and-hold for a relatively longer period, requires the fund manager to add much more value, in terms of timing the market, to improve the fund's performance. It is likely that in Franklin India Growth Fund too, a strategy may be followed. Given this backdrop, only investors comfortable with such a strategy may hold on to the fund.

Portfolio allocation: Sectorally, the technology sector tops the allocation list. The IT and the media sectors together account for close to 40 per cent of the portfolio. The fast moving consumer goods and healthcare sectors are the other two major exposures. The fund has about 26 stocks in its portfolio.

However, in terms of exposures, the fund is reasonably more concentrated than such a number would indicate. The top ten stocks account for close to 55 per cent of the portfolio. The fund has also restricted itself to stocks with a good track record in terms of performance and governance. And, since launch, the kind of stocks in the portfolio of the fund has not changed much.

At the end of October, Infosys topped the list with a weightage of slightly less than 10 per cent. However, the fund has stayed clear of other market heavyweights in the growth category, such as Wipro, HCL Technologies and ITC. Also, the weightage accorded to Hindustan Lever has been maintained at a considerably lower level of 3 per cent.

The fund has also invested in stocks such as Grasim Industries, Cummins India, Pidilite Industries, Concor, Ashok Leyland and Electrosteel Castings, which are generally not from growth sectors. It indicates the fund's view that these stocks may belong to cyclical companies but have the potential of growth stocks. These stocks account for close to 12 per cent of the net assets.

The exposure to this set of stocks may help during a downturn. However, during a bull phase, they pull down the fund compared to its benchmark, unless the fund manager is able to add value by better timing his entry and exit into stocks.