Templeton India Growth: Cut exposures

Recommendation: Cut exposures

S. Vaidya Nathan

INVESTORS in Templeton India Growth Fund can reduce their exposures as the fund may be hard-pressed to provide returns commensurate with the risks involved.

This despite the fact that the fund was one of the better performers in 2000, shedding just 2 per cent of its net asset value (NAV) when the broad market lost close to 25 per cent.

In a rough time for the market and especially technology stocks in 2000, the fund fared fairly well. But its performance since launch is fairly disappointing with returns way below what an individual investor could manage in his own capacity, even in fixed income investments, and in comparison to peers. Going forward, it does seem unlikely that it would deliver returns commensurate with equity investments.

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Portfolio overview: The fund's overall compounded annual return since its launch in September 1996 is around 7 per cent after taking into account a dividend. The fund had focussed on the value-investing style for which the Templeton group is known. This involves picking up stocks that are relatively unfenced and in a lower valuation range. But this strategy was put to work at a time when valuation levels where high in the market, and the levels for such stocks was on a lasting decline.

The fund's returns are in positive territory, largely on account of a quantum shift in strategy in 1999. After three years of refusing to capitalise on money-making opportunities, the fund took a big exposure in technology stocks in 1999-2000. It had close to 34 per cent in IT stocks.

This helped the recovery, but as a late entrant the degree of appreciation captured was smaller than in most other funds, and in some stocks, the fund may have entered at high levels. Some improvement in the valuation of select non-tech holdings such as Reliance and Grasim also helped.

Outlook: The fund's portfolio is extremely diversified now. Given the shocks from the tech sector, many institutional investors may seek diversified portfolios. This could improve the price levels of economically sensitive stocks, and any such opportunity could be used to cut exposures in the Templeton India Growth Fund.

Given the high degree of diversification, the fund has weathered the bear phases better than many others. But the overall strategy may not be enough to deliver the goods. The fund's ability to make the sectoral calls correct has a positive history of just less than a year.

Suitability: For investors (especially those who invested at the fund's launch), it may be better to seek more focussed options, such as a few sectoral funds, (to give diversification). It may be futile to hang on in the hope that the returns could improve to levels that would be commensurate for equity investments.

Given the quality of corporate management in India, the value-investing style eliminates most fundamentally sound stocks from this fund's investment universe, pegging its risk profile higher. The fund does not appear to have rewarded investors for the higher risks borne by them.

Fund facts: The fund was launched in September 1996. It levies a load of 2 per cent on investments of less than Rs 2 lakh. There is no exit load for these investments. Its net asset value is Rs **.** per unit. The fund size is around Rs 137 crore. The fund manager is Mr Mark Mobius.