Franklin India High Growth Companies Fund – a review

Franklin India High Growth Companies Fund will focus on companies offering the best trade-offs between growth, risk, and valuation. It will follow an active investment strategy, based on growth measures such as enterprise value, growth rate, price earnings growth (PEG), forward price to sales, and discounted earnings per share (EPS).

Suitability

Franklin India High Growth Companies Fund is a good fit for a risk-taking investor’s core portfolio. The fund is suitable if you prefer growth-orientated style of investing across market cap segments, with an investment horizon of above 5 years.It is suitable if you wish to take advantage of India’s longer-term growth potential, but are willing to stay put during periods of short-term volatility. However, if you cannot stomach risks, this fund may not be apt for you.

For instance, in the 2008 downturn, the fund fell as much as 58 per cent, even as the bellwether index – the Sensex, slid 52 per cent. While the fund did bounce back in style the following year with a return of 99 per cent, the fall could have panicked many into stopping SIPs, an act that should be avoided at all times.

Performance

Franklin India High Growth Companies Fund’s one-year returns, rolled every day since its launch, suggests that the fund beat its benchmark 78 per cent of the times. On a three-year daily rolling returns basis, it outperformed the index 100 per cent of the times. That is a sound record. The fund delivered around 20 per cent annually over the last five years.

Just to give you an idea of the kind of returns that a Systematic Investment Plan (SIP) in the fund can deliver, especially if you hold your investments through down markets, sample this: Had you started a Rs. 10,000-a-month SIP in the Franklin India High Growth Companies Fund at inception, you would have a handsome Rs. 23 lakh today. That’s an Internal Rate of Return (IRR) of 22 per cent.

The benchmark, CNX 500, delivered just 11.4 per cent through SIPs. Also, the fund’s own point-to-point returns since inception is about 14.8% annually, suggesting that SIPs helped deliver better, especially in volatile times. This fund is, therefore, a ripe candidate to buy through the SIP route.

Its risk-adjusted return measure (Sharpe ratio) is also higher when compared with its peer group. On a risk-adjusted basis, Franklin India High Growth Companies Fund scores better than most large-cap peers, but lags behind mid-cap funds. But that is only to be expected as it is not a pure mid-cap fund.

Portfolio

Franklin India High Growth Companies Fund dynamically manages its market cap allocation based on market conditions.

As of May 2015, 65 per cent of the fund’s total equity holdings were in stocks with market cap of over Rs 10,000 crore, 25 per cent in stocks below the Rs 10,000-crore market cap and rest in cash and cash equivalents. In contrast, a year ago, it had lower holding (58%) in the greater than Rs 10,000 crore market cap suggesting that it has more mid and small caps a year ago than it has now. Clearly, lower valuations in the large-cap segment has prompted the fund to go for large-cap stocks in recent times.

Like most other funds, the banking and financial sector remains the fund’s top pick, although the fund is marginally underweight. Automobile and engineering sectors are the other top sectors.

R Janakiraman and Roshi Jain manage the fund.

*Mutual Fund investments are subject to market risks, read all scheme related documents carefully. Past performance is not indicative of future results.