Franklin India Prima
- Category: Small/Mid Cap
- Star Rating: 4 stars
- Investment Style: Mid Growth
- Investment Process: The fund invests primarily in quality mid-cap companies with predictable business models. The fund manager homes in on quality growth-oriented companies with strong competency biases.
- Fund Manager: R. Janakiraman
- Morningstar Analyst: Himanshu Srivastava
- Date of Analysis: December 2017
We are in the midst of a mid-cap rally and many small/mid-cap funds have managed to capitalise on that. Such markets create an environment where generating returns in small/mid-cap funds appears to be a cake walk--but it is not. Extreme volatility tags along with this segment naturally and factors such as constrained liquidity, limited coverage and poor disclosures makes investing in them a tricky proposition. Such risks are apparent during market downturns, and that is a litmus test for any fund from this segment. Therefore, the prerequisites for the long-term sustainability of the fund are a skilled manager and a solid investment process. Pleasingly, Franklin India Prima Fund makes the grade on both counts.
Portfolio manager R. Janakiraman has helmed this fund since February 2011. With a research experience spanning over 18 years, he is the designated small/mid-cap specialist with the fund house and manages its small/mid-cap strategies. Thus, he uses his domain experience to the hilt in managing this fund.
Being a small/mid-cap specialist, Janakiraman is conversant with the risks associated with investing in this segment and accordingly constructs the portfolio. Intensive research therefore forms the core of his investment approach. He scouts for high-quality mid-caps that have sustainable economic moats, predictable businesses, consistent earnings growth, and reasonably high returns on equity with low balance sheet risk. He will pay what he feels is the right price for a stock, as long as he believes in the growth prospects of the business, but he generally avoids expensive areas of the market. He also invests in beaten-up stocks or out-of-favour growth companies, especially when the company is affected by external factors rather than deteriorating fundamentals. He is prepared to be patient for the stock idea to play out, as his investment horizon typically spans a business cycle.
A seasoned manager at the helm, an investment process that can be easily plied across market conditions, and a strong parent in Franklin Templeton, which boasts a strong investment culture, make this fund a best-in-class offering.
Franklin India Bluechip
- Category: Large Cap
- Star Rating: 4 stars
- Investment Style: Large Growth
- Investment Process: A research-driven investment approach with a focus on reasonably valued quality stocks.
- Fund Manager: Anand Radhakrishnan
- Morningstar Analyst: Himanshu Srivastava
- Date of Analysis: December 2017
A seasoned fund manager combined with a solid investment process from one of the best asset managers warrants a Morningstar Analyst Rating of Gold.
The most appealing aspects of Franklin India Bluechip are its management team and the investment style it uses. The management team is headed by Anand Radhakrishnan, who is a skilled manager and a proficient stock-picker. He has built an impressive track record over the years across the number of funds he runs for the fund house. He has been managing this fund since April 2007 and is supported by a strong and experienced investment team that ranks among the best in the industry.
Focused on growth and quality companies, the fund embodies Franklin Templeton’s brand of management. The investment approach is team-driven, where the focus is on identifying businesses with clean balance sheets, strong business models, sustainable competitive strengths, and high corporate governance standards. Though Radhakrishnan looks for companies with sustainable growth prospects, he is fairly valuation-conscious and is willing to stay away from issues he believes are overvalued. Clearly he is unlikely to be at his best in sharply rising or momentum-driven markets but he has proved himself as a smart stock-picker. He frequently invests in beaten-down stocks or out-of-favour growth companies, especially due to external factors rather than deteriorating fundamentals. This aspect of the strategy has served the fund well.
Investors must bear in mind that Radhakrishnan’s investment approach can result in significant deviations in the fund’s performance from that of the benchmark index and category peers. That said, the large-cap, quality-driven strategy provides resilience in downturns (for instance in 2008 and 2011). It is also noteworthy that Radhakrishnan has chosen to stand by his investment style even when it is out of favour, suggesting a disciplined approach. We believe that his investment style will hold the fund in good stead over a market cycle.
Franklin India Prima Plus
- Category: Flexi Cap
- Star Rating: 3 stars
- Investment Style: Large Growth
- Investment Process: A research-driven investment approach with a focus on reasonably valued quality stocks.
- Fund Manager: Anand Radhakrishnan
- Morningstar Analyst: Himanshu Srivastava
- Date of Analysis: December 2017
The fund has all the ingredients to be investors’ preferred choice.
There are many factors that give Franklin India Prima Plus an edge over its competition. The foremost is manager Anand Radhakrishnan and his investment team, which, in our opinion, rank among the best in the industry. This is followed by intensive research that underpins a robust investment process. Radhakrishnan works closely with his team to uncover quality companies capable of delivering sustainable growth. Plying a bottom-up approach, he scouts for companies with clean balance sheets, strong business models, sustainable competitive strengths, and high corporate governance standards. Over time, he has proved himself to be an astute stock-picker.
Admitting that the stocks meeting his criteria need not be cheap, Radhakrishnan will pay what he believes is a fair price and has shown this in small/mid-caps where he has displayed a willingness to pay a higher price for incremental growth. Despite the growth orientation, the fund isn’t a commonplace growth offering. The manager often displays a rather contrarian streak in his picks--for instance, his exposure to the telecom sector this year. He is also conscious of rich valuations and will exit stocks/reduce allocation to stocks which he believes are fully valued (for instance cement stocks in 2014). The strategy has delivered impressively on Radhakrishnan’s watch (April 2007-October 2017), with the fund outperforming 72% of peers on the return front.
However, the investment style has a few caveats. The penchant for concentrated and contrarian bets can expose the fund to above-average volatility and result in a divergent showing versus the norm in the short term. Also, the quality bias and valuation-consciousness may hold the fund back when speculative fare is in favour. Clearly, investors must have an investment horizon spanning a market cycle.
Having said that, an able manager backed by a solid team, a strong process, and one of the best fund companies in the industry add up to a top-class offering.
ICICI Prudential Dynamic
- Category: Flexi Cap
- Star Rating: 3 stars
- Investment Style: Large Blend
- Investment Process: The ability to think differently is critical in this strategy. The fund manager made his mark leveraging contrarian bets.
- Fund Manager: Sankaren Naren
- Morningstar Analyst: Nehal Meshram
- Date of Analysis: November 2017
ICICI Prudential Dynamic Growth remains a credible investment option with Sankaren Naren's distinct skill of uncovering value opportunities with a judiciously applied investment process, making a strong case for an upgrade of its Morningstar Analyst Rating to Gold from Silver.
Over time, Naren has proved himself as an astute portfolio manager with his ability to think differently and pick stocks that have the potential to generate higher returns. Naren is backed by comanager Ihab Dalwai and a highly cohesive investment team, contributing unique investment ideas that are debated rigorously. Manish Gunwani's departure and other portfolio manager reshuffles have somewhat hampered continuity, but ICICI's focus on internal talent development and incentives promotes longevity and advance succession planning.
The fund's long-standing process is research based with a mix of top-down and bottom-up styles. The fund follows a multi-cap approach across segments, with a tilt towards value stocks that have long-term growth potential. When markets run up and valuations seem stretched, reducing net equity exposure in the portfolio is critical in this strategy. Naren deploys a rules-based approach using the historical price/book value of the market to determine fair value and in turn tweak cash allocations. He backs his conviction, even if it means underperforming over shorter time frames. He takes sector bets and aggressively trades his large-cap picks, but such tactics are not without risk. In a sustained bull run, the price/book model will point towards a higher allocation to cash, which may lead the fund to underperform its peers.
The value tilt requires significant patience, as value stocks can underperform growth stocks for lengthy periods. Nevertheless, the fund has a sound record of delivering decent long-term returns. There are inevitable periods of underperformance when the value style is out of favour, but the fund's dynamic allocation managed to provide cushion to the portfolio during the downturn. Its low expense ratio also helps. The fund remains a solid choice for investors seeking contrarian instincts and who are comfortable with the related volatility.
ICICI Prudential Top 100
- Category: Large Cap
- Star Rating: 5 stars
- Investment Style: Large Blend
- Investment Process: In this concentrated portfolio with a large-cap bias, the fund manager follows a disciplined investment process that follows a top-down approach to evaluate stocks.
- Fund Manager: Sankaran Naren
- Morningstar Analyst: Nehal Meshram
- Date of Analysis: November 2017
ICICI Prudential Top 100 Growth has been upgraded to our highest Morningstar Analyst Rating of Gold from Silver. The fund's highly competent and experienced team, robust investment process, and well-structured portfolio methodology strengthen our conviction.
We regard portfolio manager Sankaran Naren as one of the highest calibre investment professionals in the industry. Naren has proven himself as an astute portfolio manager with his ability to think differently and pick stocks that have the potential to generate higher returns. We like his distinctive long-term investment style, which has delivered top-quartile performance with a high level of consistency through the cycle.
The investment team is remarkably large and collaborative, comprising seven portfolio managers and 16 research analysts. The fund is comanaged by Prakash Goel, who joined the fund house from ICICI Securities in October 2017. Manish Gunwani's departure and other portfolio manager reshuffles have somewhat hampered the continuity, but ICICI's focus on internal talent development and incentives promotes longevity and advance succession planning.
The fund follows a large-cap approach, with a tilt toward value stocks. The portfolio strategy is driven by the manager's ability to construct a differentiated portfolio comprising stocks that become long-term winners. The strategy is centred on a top-down approach, however, fundamental bottom-up analysis of stocks is also critical element, and the team excels in this area of the investment process. Naren also makes contrarian calls in this fund even if it means bearing short-term pain.
The fund's low turnover ratio demonstrates the team's patience and conviction in the outcomes of the investment process. This has delivered risk-adjusted returns well ahead of competitors over the long term. The fund has also weathered the market downturn better than category peers and has provided protection from downside risk. There may be difficult quarters because of its value bent, but under Naren's stewardship, the fund should pay off handsomely in the long run.
HDFC Mid-Cap Opportunities
- Category: Small/Mid-Cap
- Star Rating: 4 stars
- Investment Style: Mid Growth
- Investment Process:
- Fund Manager: Chirag Setalvad
- Morningstar Analyst: Kavitha Krishnan
- Date of Analysis: May 2017
- The fund is one of the best at what it does. Chirag Setalvad stands out as a capable manager who applies a hands-on approach towards research.
The small/mid-cap segment can best describe the volatility across Indian equity markets. Other factors such as constrained liquidity and limited coverage can make small/mid-cap investing slightly more challenging. Hence, the need for a skilled manager and a solid investment process cannot be overstated. HDFC Mid-Cap Opportunities makes the grade on all counts.
In our opinion, Setalvad ranks amongst the best portfolio managers in the India Small/Mid-Cap Morningstar Category. He has been managing this fund since its inception in June 2007, and we view his long tenure at the fund house as a positive. Detailed and exhaustive research is central to his investment approach. Setalvad emphasises gaining an in-depth understanding of a business before investing. He seeks companies with proven track records so he can gauge how they have held up during testing times.
There is a perceptible quality bias in the investment style, characterised by investments in companies with strong management teams and robust business models. This inherent investment style is one that we have come to associate with the fund company’s equity funds. Setalvad combines absolute and relative valuation parameters to select stocks that aren't too expensive relative to their growth prospects.
The manager is a patient investor with a long-term investment horizon, which jells well with the quality bias. Given the bias for quality stocks, we expect the fund to underperform the competition in market phases when speculative fare is in favour. Investors must also note that Setalvad’s tendency to make contrarian investments can result in a divergent showing versus the category over shorter time periods. Nonetheless, over a market cycle, we believe the fund is equipped to serve investors well.
Our confidence in the fund’s performance potential has only grown stronger over time. Hence, we maintain our highest Morningstar Analyst Rating of Gold on this fund.
