Review: Franklin India High Growth Companies Fund

The Scheme seeks to achieve capital appreciation through investments in Indian companies/sectors with high growth rates or potential.
*Source: Offer Document

'Growth' and 'Value' are the most commonly pursued investment styles. Under the value style, the fund manager invests in fundamentally strong companies that are trading at a discount to their fair value. Conversely in the growth style, investments are made in well-managed companies that may be fairly/fully valued, with the expectation that they are likely to do even better going forward. Such stocks are typically expected to clock growth at an above-average rate vis-à-vis their industry or the broader market.

Franklin India High Growth Companies Fund (FIHGCF) is the latest offering from Franklin Templeton Mutual Fund. The fund has been positioned as a growth style fund. It intends to capitalise on the 'India' growth story by investing in companies/sectors that have high growth rates or potential to deliver likewise.

Typically, high growth companies would have higher valuations (P/E multiple). Hence, pursuing the growth style of investing would entail taking on higher risk vis-à-vis the value style of investing. Also the said style is better equipped to deliver in a scenario when equity markets are on the rise.

FIHGCF fails to offer a compelling investment proposition. Barring its positioning as a growth style fund, it has nothing unique to offer. In the context of the domestic mutual fund industry, funds are commonly known to pursue the growth style of investing; alternatively there are funds that follow a blend of growth and value investing. In fact, a number of funds from the Franklin Templeton stable offer a similar investment proposition.

For example, Franklin India Prima Plus (a predominantly large cap offering from Franklin Templeton) invests in high growth companies by pursuing both the growth and value styles of investing. Coincidentally, the fund house had in its stable Franklin India Growth Fund, a growth style fund, which was merged into Franklin India Prima Plus, on account of factors like a low net asset base. Similarly, like FIHGCF, Franklin Flexi Cap invests in stocks from across market segments, albeit it pursues both the growth and value styles of investing

In our view, investors should give FIHGCF a miss for now. Instead they can consider investing in funds like HDFC Top 200 and DSP ML Opportunities, which follow the growth style of investing and have proven track records to show for. Investors can form a revised view on FIHGCF, after evaluating its performance over a 3-Yr time frame.

The fund will not have a bias for any market segment i.e. stocks from across market segments (large, mid and small caps) can feature in the fund's portfolio. Also it intends to be fully invested at all times, which is in line with the fund house's investment philosophy. FIHGCF will employ a combination of the top-down (for identifying sectors) and bottom-up (for stock picking) approaches.

FIHGCF is mandated to invest between 70%-100% of its assets in equities/equity-linked instruments. Debt and money market instruments can account for upto 30% of the fund's assets. Investments in foreign securities, as permitted by SEBI and RBI can account for upto 35% of assets.

Mr. K. N. Siva Subramanian, is the Senior Vice President and Portfolio Manager-Equity at Franklin Templeton Mutual Fund. He holds a B.E. from REC, Jaipur and a PGDM from IIM-Kolkata. He was associated with IDBI as an Industrial Finance Officer from 1988-1993. Mr. Subramanian joined the erstwhile Pioneer ITI AMC Limited in 1993, which was subsequently taken over by Franklin Templeton Mutual Fund.

Mr. Anand Radhakrishnan is the Vice President and Portfolio Manager at Franklin Templeton Mutual Fund. He is a CFA, a PGDM and a B. Tech. He was associated with Sundaram Asset Management Limited as a Fund Manager from 1996-2004. Mr. Radhakrishnan was the Fund Manager for the Portfolio Management Services of Franklin Templeton AMC from 2004-2006.

FIHGCF has all the makings of a high risk – high return investment proposition and can be expected to perform in a likewise manner, going forward. Above-average volatility could well be a permanent feature in the fund's performance.

Franklin Templeton Mutual Fund is known for its process-driven investment approach. The performance of schemes like Franklin India Bluechip and Franklin India Prima bear testimony to the fund house's expertise and investment processes. FIHGCF will benefit from the same.

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