The Hindu Business Line : Franklin India Bluechip: Hold

While Bluechip's investments in the banking sector have paid off, its higher allocation to the automobile sector in early 2006 appears to have hurt performance.

Unitholders can retain investments in Franklin India Bluechip. The fund's underperformance relative to the category in recent years notwithstanding, we believe the fund should still find a place in one's portfolio given its strong large-cap focus and track record.

Franklin India Bluechip Fund has a strict focus on large caps, which typically refers to stocks with a market capitalisation of more than Rs 5,000 crore. This limits its investment universe currently to about 55-60 stocks. However, a growing economy will allow many new stocks to enter the large-cap space. The outperformance of large caps, in recent years, has also come on the back of foreign institutional investors continuing to find comfort in leading frontline companies amid uncertainty. It makes sense, therefore, to have a large-cap fund in one's portfolio.

Performance: Franklin Bluechip, over the past three years, has delivered an annualised return of about 35 per cent, about the same as that of the BSE Sensex.

On the other hand, several diversified funds, which tend to have a more significant allocation to mid-cap stocks, have delivered superior returns during this period.

Even though large caps have been outperformers over the last two years, the fund has trailed the Sensex, which has proved to be a tough benchmark. This is because most of the gains in the Sensex can be explained by the performance of just a handful of stocks such as Reliance and ICICI Bank, which have a heavy weight in the index.

Funds with a focus on large-caps have found it hard to replicate the performance of the Sensex because of their need to maintain a diversified portfolio. Other funds with a more flexi-cap strategy have picked mid-cap stocks or stocks outside the Sensex to generate outperformance.

Bluechip Fund has delivered a return of 7 per cent over the past year, which is still above the diversified fund category average. However, it still trails the performance of peers such as Birla Frontline Equity Fund, which has latched on to outperforming sectors such as telecom.

While Bluechip's investments in the banking sector have paid off, its higher allocation to the automobile sector in early 2006 appears to have hurt performance.

Its current holdings in the auto sector include Tata Motors, Ashok Leyland, Maruti Udyog and TVS Motors, all of which have been underperformers. However, the exposure to the sector has been gradually reduced over the past year. This might minimise the impact of any slowdown in this sector on portfolio performance.

Portfolio overview: Franklin Bluechip has an asset base of about Rs 2,500 crore, which makes it one of the larger funds in the category. Size is not an inhibitor for performance as it focuses on large-cap stocks.

The fund takes focused exposures to stocks; the top 10 stocks account for 40 per cent of the assets, which is higher than other diversified funds. The quality of its stock picks will, therefore, have a higher influence on performance.

The portfolio is, however, diversified across sectors. The top three sectors are capital goods, banking and software.

The portfolio is churned actively. The fund has exited underperformers such as Tata Tea, Hindalco, Jet Airways and Hero Honda in recent months.

The fund is managed by Mr K.N. Sivasubramanian and Mr Anand Radhakrishnan.

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