Franklin India Flexi Cap: Buy

With the Sensex at a new high and with most large-cap stocks bid up in this bull market, stocks that rank lower in terms of market capitalisation offer investors good opportunities.

An equity fund that can make the nimble switches necessary to capitalise on such stocks is the Franklin India Flexi Cap Fund. Unlike Franklin Bluechip or Prima, which adhere quite rigidly to their mandates of buying large-cap and mid-cap stocks, this fund is free to shift its allocations between large-, mid- and small-cap stocks based on where it sees the most value and opportunities. Investors can consider buying units of the fund, given that it has used this strategy to good effect in the past five years.

Given its go-anywhere, do-anything mandate, this is a good fund for your core portfolio, even if you plan to own only one or two equity funds.

Returns

Over one-, three, and five-year time frames, the scheme has managed to outperform its benchmark, the CNX 500. The level of outperformance has been to the tune of 4-6 percentage points over the years. It has also delivered better than its category average consistently.

In the past five years, Franklin India Flexi Cap has delivered 25.2 per cent annually, higher than peers such as DSPBR Opportunities and ICICI Pru Top 200.

The scheme does take concentrated exposure to select stocks but these are quality names and, hence, not very risky bets.

Franklin India Flexicap has used its ability to shift across market caps quite adroitly across market cycles. In early 2010, a period of robust earnings growth for India Inc, the fund had up to 30 per cent of its portfolio parked in mid-caps (market cap of less than ₹7,500 crore).

But by early 2012, as earnings growth began to slow and economic conditions turned more risky for smaller companies, the fund scaled down its exposure to mid-caps to sub-20 per cent.

The fund has since played it fairly safe, retaining its mid-cap exposures below a fifth of its portfolio. In terms of sector choices, banks have consistently topped the portfolio.

This bet now seems to be paying off as cyclicals experience a strong rally. Pharma has been another key holding.

But over the past year, Franklin India Flexi Cap has increased exposure to software and benefited from its spectacular rally, given the improving business sentiment as well as gains from a weak rupee. The scheme has increased exposure to auto and auto ancillaries as well as telecom.

Infosys, Bharti Airtel, ICICI Bank, Dr Reddy’s and Amara Raja Batteries are some of its key holdings. Interestingly, the US-listed tech player Cognizant Technology Solutions, which has delivered extremely well over the past few years, has found a place among the top stocks in the scheme’s portfolio.

Get into Franklin India Flexi Cap for above-average returns; it comes with moderate risks.

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