The Hindu Business Line : Attractive valuations behind FT Prima Fund re-opening?

Franklin Templeton's recent decision to re-open Franklin India Prima Fund for fresh sales did not spawn big, bold headlines. It was in many cases relegated to a far corner, dwarfed by more important news stories of the day. But despite the casual treatment, there is no reason to brand the development as insignificant.

On the contrary, there is a need to see it in the greater context, marked as it is by the conditions currently prevailing in the stock market.

But, first, for the benefit of those who came in late, let us quickly revisit the decision, as outlined to us by FT. Franklin India Prima, the diversified equity fund dedicated chiefly to mid- and small-cap stocks, will open for on-going subscriptions on Monday. The decision reverses FT's move to suspend sale of its units, beginning February 4.

So, why is this reversal so important? Why are we dedicating a full column to this? The reason is clear - FT's latest proposal makes it obvious that the tables are turning, and that the stock market is changing yet again.

Consider what FT had said when it suspended sales (for six months) and you will get a fuller picture. The fund house had in January pointed out that in view of Prima's large size and the then market conditions, "large short-term inflows in the scheme may prove detrimental" to the interest of its unit holders. Incidentally, SIPs and STPs were allowed. Further, all other terms and conditions mentioned in the offer document were left unchanged.

It may also be mentioned that the FT move is not a first; Reliance MF had done something similar with respect to Reliance Growth Fund.

The fund house, which put an embargo on Prima because it was getting way too large, is well aware that mid- and small-cap counters have declined more than marginally in recent days. Valuations are again becoming attractive, relatively speaking though. The fund managers at FT, it seems, are now sure that they can make good use of new inflows in tapping long-term prospects. Also, for the record, Prima (which has provided 26 per cent or so since 1993) currently manages over Rs 2,050 crore.

Prima, as those following the MF sector closely would know, has a dozen years behind it, a legacy left behind by the erstwhile Kothari Pioneer. FT took it over along with a set of other schemes when it acquired Kothari Pioneer a few years ago.

FT, it appears from the note it has handed out, wants investors to consider the "increased availability" of stocks that make up Prima's universe. Its holdings, it is claimed, are well positioned to gain from the "relatively higher growth potential" enjoyed by these stocks. Yet, at the same time FT has issued a neat caveat: Investors need to have "realistic return expectations" in the days to come.

The last available portfolio statement suggests that the fund (as on May 31) has scaled up its equity exposure from 96.9 per cent to 97.3 per cent.

It has added stocks such as India Cement and enhanced holdings in Sundaram Fasteners. It pared its allocations to a number of stocks: Jaiprakash Associates, Gammon India, Goodlass Nerolac and Marico. Also, it exited Zee Tele.

Sectors such as consumer non-durables, pharma and construction account for a good portion of the portfolio - about 40 per cent.

Feedback may be sent to nilanjan@thehindu.co.in

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