Fund Call: Franklin India High Growth Companies: Taking a turn for the better

The fund figures in the top quartile across time frames, after the recent turnaround

With the recent outperformance in banking stocks, there has been a turnaround in the one-year performance of Franklin India High Growth Companies Fund. The fund has delivered 26.4 per cent returns, beating its benchmark — Nifty 500, as well as the multi-cap category average returns of 24.9 per cent and 25 per cent, respectively. Over three and five years, the fund outshone its benchmark by 4-8 percentage points and remains in the top quartile of funds.

The flexibility to invest across market caps has helped the fund deliver stable returns over the long run. Investors with a long-term horizon can buy units of Franklin India High Growth Companies, a decade-old multi-cap fund. Over the long run — five-year period — it has outperformed its peer funds such as Kotak Opportunities Regular Plan, HDFC Premier Multi-Cap and SBI Magnum Multicap. The fund figures in the top quartile across time frames, after the recent turnaround.

It seeks to achieve capital appreciation through investments in Indian companies/sectors with high growth rates or potential. With the markets scaling new highs, investors can take exposure through the SIP (systematic investment plan) route.

Portfolio and strategy

Franklin India High Growth Companies has a compact portfolio of 35-40 stocks and the top three sectors constitute 56 per cent of the portfolio. On a risk-adjusted basis, the fund scores over peers with a higher Sharpe ratio. The fund invests predominately in growth stocks across market caps.

Following an extraordinary performance in 2014, the fund put up a lacklustre show in 2015 and 2016.

It delivered 33 per cent returns year-to-date, which is in line with the category average. It actively invests 88-95 per cent in equity. It also takes active cash calls.

Banks, telecommunication and automobiles are the top three sectors. Among them, the performance of bank stocks has been spectacular, particularly after the recent big-bang bank recapitalisation plan. Stocks such as State Bank of India, ICICI Bank and Axis Bank zoomed, taking the fund’s performance higher. The recent rally in the stock of Bharti Airtel to its multi-year high has also boosted the fund’s NAV. The fund is overweight on telecom, healthcare and consumer durable sectors, while it is underweight in energy, IT and metals sectors.

Apart from the top 10 stocks, the fund’s allocation in other stocks is diffused and is less than 3 per cent of its allocation. Schaeffler India, Tata Motors, Sobha and ICICI Lombard General Insurance Company have entered the fund’s portfolio recently.

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