The Hindu Business Line : Franklin India Flexi Cap: Hold

Investors can retain their holdings in Franklin India Flexi Cap. Over a three-year period the fund has generated a compounded return of over 13 per cent, narrowly beating CNX 500, its benchmark by two percentage points.

Clearly, the last few months of a dilly-dallying market have a taken a toll on the fund’s performance. However, given its flexibility to move across market capitalisations and its track record of generating better returns than its benchmark and peer funds, it appears a worthwhile proposition to remain invested in this fund.

Performance: After an astounding performance in the bull run, the performance in the last year has not been as impressive. Not only did the fund fail to keep pace with its benchmark, its performance also lagged the category average by a considerable margin.

Over this period, the fund lost over 27 per cent, while CNX-500 managed to limit the loss to 24 per cent. It also underperformed some of its peer funds such as HDFC Premier Multi Cap and HSBC Opportunities over a one-year period. However, in spite of all this, the fund’s three-year track record inspires confidence. Not only did the fund better its benchmark a good 24 times in its 39 months of existence, it has done so with considerable margins. Further, it delivered quite well during the previous two correction periods, be it the mid-cap correction in October 2005 or the broad market fall in May 2006.

What disappoints is the fund’s slackening performance in recent times, which however may improve given its current relatively large-cap bias. Despite the flexibility to move across to mid- and even small-cap stocks, the fund has predominantly maintained a large-cap bias. While this may have limited its ability to make quick gains during the mid- and small-cap euphoria that peaked in January this year, this strategy may deliver better downside protection in the current market conditions. As of August 2008, the fund had over 74 per cent exposure to large-cap stocks.

Portfolio Overview: After having systematically cut exposure to the banking sector from February, the fund has, since July, significantly upped its exposure to the sector again. Axis Bank, HDFC Bank and ING Vysya Bank figure in the top three bank stocks.

In the last three months, it has also added media and select fertiliser stocks. In terms of the top sectors besides banks, it is capital goods, telecom and software that find a place in its overall portfolio. Its NAV per unit is Rs 19.5.

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