Franklin India High Growth Companies fund is a flexi-cap fund with an impressive 5-year annualized performance of 24.39%. After a good run in 2012, 2013 and 2014, it delivered below average performances in the following two calendar years.
Analyst Himanshu Srivastava assigned a Silver rating to the fund and explains what he likes about it.
- We draw confidence from the fund manager’s executional capabilities and research-driven investment approach.
Roshi Jain is an able manager who follows a sound process and is backed by a solid investment team. She’s an old hand at Franklin Templeton Mutual Fund, having joined the fund house as an analyst in May 2005. She became the co-manager for this fund in October 2012 alongside Siva Subramanian and the lead manager in March 2014.
Our confidence in the fund and its prospects stems from the presence of Jain at the helm and a high-calibre investment team having experience in managing similar strategies successfully over a period.
- Jain employs model portfolios as her initial reference point.
Step 1
The team decides on a coverage list where they look for growth companies that fit their qualitative requirements. Only companies that have durable competitive advantages versus peers, sustainable business models, strong entry barriers, able management teams, and good corporate-governance standards are included in the coverage list.
Step 2
This is followed by quantitative analysis in which analysts gauge companies using a combination of discount cash flow models and quantitative parameters relevant to the sector.
Step 3
Analysts create sector-based model portfolios which are then combined by the research head to create market-cap based portfolios.
- With the model portfolios as her initial reference point, the fund manager narrows down on her picks.
She scouts for sectors and stocks which have structural drivers, offer high growth and are available at reasonable valuations. She prefers companies which focus on organic growth rather than inorganic growth and have the potential to post a strong incremental ROIC over the long term.
Contra bets are with a long-term horizon only if the stock has been affected negatively due to external factors.
She does not shy away from taking significant sector and stock bets, and hence constructs a concentrated portfolio having 55%-60% of assets invested in top 10 stocks vis-à-vis the category average of 45%-50%. However, she ensures that it doesn’t have significant exposures in two sectors which are fundamentally aligned. For instance, given she has high exposure to banking stocks, she has avoided investing in metal and mining companies.
- The portfolio is currently positioned to benefit from a turnaround in economic growth.
Jain has been investing in sectors and companies which are related to domestic growth recovery rather than export-oriented.
The strategy has few limitations which does not permit her to invest in sectors which are capital-intensive and doesn’t offer high growth prospects, such as utilities.
- The fund manager has the capability to execute the strategy.
Under Roshi Jain (March 2014 to October 2017), the fund has clocked an annualised return of 28% thus outperforming its index IISL Nifty 500 (19%) and category average (23%). Subsequently it outperformed 84% of the Morningstar Category peers on the returns front and 86% of the competition on Morningstar risk-adjusted returns front.
In 2014 when Jain took over the fund, her investments in select stocks from the banking, basic materials, and industrial sectors paid off well. But the performance was underwhelming in 2015 as Jain’s bets based on economic turnaround didn’t pan out as expected. In 2016, her investments in stocks from the financial services and energy sectors helped the fund to outperform the category average and benchmark index.
This year’s average performance is due to investments in stressed sectors like technology and healthcare.
Read the brief analyst note on Franklin India High Growth Companies
