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S. Vaidya Nathan

FRESH investments can be considered in Franklin India Prima Fund as it has built an impressive track record over time. The consistency across different phases of the market and over most quarters in the past five years is a positive factor. In 2003 so far, Prima is the top performer among equity funds with returns of about 44 per cent.

Investments can, however, be considered in a phased manner, perhaps using the systematic investment plan. This would enable investors to benefit from any declines in prices. Mid-cap stocks, which form the bedrock of Prima's investment strategy, have run-up quite sharply over the past six months.

The fund has handled such phases in the past well. Investors can expect a similar pattern now. But the risk of entry now is higher than was the case about three to six months ago. Given the kind of returns generated by the fund over the past five years, it may pay to invest in a systematic manner.

Suitability: Prima is a diversified fund that focusses largely on mid-cap and small-cap stocks. This enhances its risk levels compared to a typical diversified fund. Price trends in mid-cap and small-cap stocks tend to be volatile.

Impact costs of buying and selling a sizeable quantity of shares in such stocks is also on the higher side. As such, the fund is appropriate for investors with a penchant for higher risk. However, Prima has delivered returns that have more than compensated for the higher risk.

For investors looking at making their initial investments in equity, Prima can be considered after exhausting options such as Bluechip and HDFC Equity Fund (the erstwhile Zurich India Equity Fund). These funds focus on large-cap stocks. If you already hold exposures in such fund, Prima can serve as a good diversification option. Exposures to Prima can also help perk up the overall returns on the portfolio. Investors can stay with the Dividend Option as it offers better tax efficiency till March 2004.

Portfolio overview: The following are the significant trends in the portfolio in the first six months of 2003:

Exposures to the IT sector have been wound down to marginal levels. IT was the top sector holding at the end of 2002, accounting for 16 per cent of net assets. Now the fund just holds MphasiS BFL. The exposure is less than one per cent of net assets. Stocks such as Mastek, i-flex solutions and Aztec Software have been sold out.

Having capitalised on the firm uptrend in banking stock prices, the fund has booked profits. It has retained only UTI Bank and Oriental Bank. A host of other banking exposures have been sold out.

The fund has done well by taking advantage of the price spurts. It has also avoided the recent decline in prices. Holdings in UTI Bank have paid off as the stock has risen more than 50 per cent in the past month.

Exposures to pharmaceutical stocks have been pared to modest levels as in the case of the IT sector. This is another key sector which forms less than one per cent of net assets.

The prime focus is on chemicals and agro-chemicals. With exposures in stocks such as Goodlass Nerolac, Rain Calcining, Jubilant Organosys, Deepak Nitrite, Atul, Monsanto Chemicals and EID Parry, this sector now accounts for about 15 per cent of assets.

Indian Rayon has emerged as the biggest holding in the portfolio following a sharp ramp-up in holdings in the stock in the last two months.

A shift from stocks of auto-ancillary companies to those of automobile manufacturers, such as Mahindra & Mahindra, Maruti, Ashok Leyland, Tata Engineering and Eicher, has paid off. The fund would have locked in to its auto-ancillary gains and now participated in the rally in the stocks of auto manufacturers' stocks.

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