Franklin India Bluechip: Steady show during volatile times - Buy

The fund contains downsides while making the most of market rallies

After the strong rally that lasted almost eight months, Indian equities have been consolidating over the past month.

Given the temporary lull in the economy following demonetisation, GST implementation and geopolitical tensions, further correction cannot be ruled out.

While it is important to cushion the portfolio from short-term hiccups, equities are critical to long-term wealth creation.

Hence, large-cap oriented funds that contain the downside during market falls while delivering healthy performance in the long term may be a good way to play the volatility.

Franklin India Bluechip is one such fund. Investors with a three to five-year investment horizon can consider investing a portion of their surplus in this fund, through the systematic investment route.

In the past, the fund has managed to contain downsides better than its benchmark S&P BSE Sensex during market down-cycles. Sample this.

During the November 2010-December 2011 correction, the fund’s NAV fell 19 per cent, lower than the 25 per cent decline in the benchmark.

Likewise, more recently, during the March 2015-February 2016 period when the benchmark S&P BSE Sensex shed over 22 per cent, the fund contained the fall at 16 per cent.

Higher allocation to large-cap stocks has helped. Besides, right sector shifts and cash calls helped boost performance.

The fund loaded up on automobiles, reduced exposure to IT stocks and also increased cash levels to 5-7 per cent, which aided performance.

The fund hardly has any exposure to mid and small-cap stocks. This lends stability to the fund, should the market correct further.

During the relief rallies that followed corrective spells, the fund delivered gains higher than the benchmark.

For instance, during the August2013-March 2015 rally phase, it gained 80 per cent, higher than the benchmark’s 64 per cent gain.

Similarly, since February 2016, the fund has gained around 40 per cent, compared with 37 per cent rise in the benchmark.

Though the fund’s performance over the past year has been a bit weak, with the NAV return being marginally lower than its benchmark, it has delivered a 3-4 percentage point outperformance over three- and five-year periods.

Consistency up

The marginal underperformance over the last four months led to moderation in the scheme’s one-year return.

Exposure to stocks such as Tata Motors, Dr Reddy’s Laboratories, Lupin and Bank of Baroda, which lost over 20 per cent over the April-August 2017 period, had a negative rub-off on the scheme’s performance.

While these bets have not played out in the short term, a rebound in the near to medium term should aid performance.

The scheme’s consistency has also improved over the last three years to 90 per cent compared with 64 per cent over the last five years.

Consistency is measured by the number of times the fund’s daily one-year performance outperformed its benchmark.

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