Investors with a very conservative frame of mind and an investment horizon of at least five years can consider investing in units of Templeton India Growth Fund. The fund follows a strategy of buying and holding stocks for a longer period with a strong thrust on their valuation. Dividends have also been paid out consistently over a ten-year period.
With market valuations soaring over the past year — a result of poor earnings growth and a rapid rise of stock prices — a value-based approach may pay off now. The fund’s portfolio PE multiple as December is about 17 times, at a slight discount to the Sensex’s 18 times. The fund’s PE has also remained steadier in the past three years than the Sensex’s wider swings.
The fund may not give out the superlative returns of equity funds, but could protect risk of loss in a falling market. Barring 2011, the fund has managed to contain slide in NAVs during market downturns reasonably.
On a five-year rolling return basis, though, the fund has bettered its benchmark only about 60 per cent of the time, owing to its underperformance in 2011. Dividends have, however, been paid out during the poor years as well. But the fund’s 9.1 per cent SIP return over this period suggests that this may be an optimal route to invest in the fund.
Portfolio : The fund sports a limited portfolio of 25-35 stocks. Large-cap stocks currently dominate the portfolio at around 77 per cent, with a fair share of mid-cap stocks and a limited presence in small-cap stocks. But given that the fund uses valuation parameters in stock picks, this proportion is liable to change.
That the fund prefers stocks out of favour and thus usually undervalued is evident from the lack of pure-consumer stocks and the inclusion of stocks from the fertiliser (11.4 per cent), metals (1.9 per cent), and oil (4.8 per cent) space.
The fund caught the wave of private sector banks rather early, gradually building stake in the sector November 2011 onwards, while booking out of stocks in public sector banks in February 2012.
There are no holdings in stocks of FMCG or retail companies, whose valuations have skyrocketed in the past year. It does have a measure of the consumer angle in picking good performer Maruti Suzuki and telecom stocks such as Bharti Airtel and Idea Cellular. Among tyre stocks, the fund added dark horse Balkrishna Industries, which has turned out to be a good performer. The fund has a defensive play in pharma stock Dr Reddy’s Labs.
Taking advantage of their recent good run, the fund recently exited the stocks of Reliance Infrastructure — in which it had been slowly increasing stake from mid-2010 onwards — Usha Martin and Tata Steel. These stocks, along with Union Bank of India, were partly to blame for the poor performance in 2011.