Thanks to the copious inflows from foreign institutional investors, the Sensex has gained 8 per cent in the last one year. But not all large-cap equity funds bettered their benchmark during this period.

Wrong stock and sector choices hurt many funds. Templeton India Growth Fund is a classic example. Despite being a large-cap fund, it could not capitalise much on the rally in part due to its value-based investment philosophy that takes non-momentum bets.

The fund bets on themes, such as financials and engineering, currently not fancied by the market. But with a possible reversal in the trend, these stocks may hold good potential to outperform in the future.

Though the fund clocked gains lower than the benchmark on a one- and three-year basis, it has managed to better the Sensex over a five-year period. Investors may retain the units that they hold. The fund may suit investors with a minimum investment horizon of five years.

Short-term volatility

Given its value investing approach, underperformance in the short-to-medium time frame may be inevitable. With Templeton India Growth Fund betting on contra themes, volatility during corrective phases tends to be higher relative to other diversified funds.

Hence, the fund did not taste much success in containing downsides during market falls. For instance, during the November 2010-December 2011 period, the fund’s NAV declined 32 per cent, 5 percentage points more than the Sensex.

Similarly, since the beginning of 2013, the fund lost almost 6 per cent, compared with a 1 per cent slide for the benchmark. Higher exposure to sectors such as metals, mining and power utilities dragged returns. However, it did manage to contain the downside better during the January 2008-March 2009 fall. Despite the 6 per cent fall for the Sensex, the fund curtailed the NAV decline at barely 1 per cent.

Outperforms during rallies

Templeton India Growth has managed to outperform the benchmark during the two brief rallies in the last five years. The fund outshone the Sensex during the March 2009-November 2010 rally, gaining 55 per cent, compared with a 28 per cent rise in the Sensex.

Likewise, during the relief rally which commenced in January 2012 and lasted up to January 2013, the fund’s NAV climbed 38 per cent, higher than the 32 per cent increase in the Sensex.

A monthly investment of Rs 1,000 in the fund in the last five years would have generated annual gains of 7.6 per cent.

Financials and software have always been the scheme’s favourite bets. But excessive exposure to banks saw returns lag behind.

As of October, the fund held 21 stocks in its portfolio with an average market capitalisation of over Rs 68,000 crore.

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