If you are looking for exposure to high growth companies across the large and mid-cap segments in select sectors that could sail fast in an upturn, then you can consider phased investments in the Franklin India High Growth Companies Fund.
What are high growth companies?
High growth companies are typically those companies which have expanded their sales, as well as earnings, at a much higher rate than that of the general economy. Because these companies tend to grow earnings at a fast pace, they typically have higher valuations (P/E- Price to earnings ratio).
Franklin India High Growth Companies Fund will focus on companies offering the best trade-offs between growth, risk, and valuation. It will follow an active investment strategy, and will focus on rapid growth companies which will be selected based on growth measures such as enterprise value, growth rate, price earnings growth(PEG), forward price to sales, and discounted Earnings Per Share (EPS).
Franklin India High Growth Companies Fund is a good fit for a risk-taking investor’s core portfolio. The fund is suitable if you prefer growth-orientated style of investing across market cap segments, with an investment horizon of above 5 years.
It is suitable if you wish to take advantage of India’s longer-term growth potential, but are willing to stay put during periods of short-term volatility. However, if you cannot stomach risks, this fund may not be apt for you.
For instance, in the 2008 downturn, the fund fell as much as 58 per cent, even as the bellwether index – the Sensex, slid 52 per cent. While the fund did bounce back in style the following year with a return of 99 per cent, the fall could have panicked many into stopping SIPs, an act that should be avoided at all times.
Franklin India High Growth Companies Fund’s one-year returns, rolled every day since its launch, suggests that the fund beat its benchmark 78 per cent of the times. On a three-year daily rolling returns basis, it outperformed the index 100 per cent of the times. That is a sound record. The fund delivered around 20 per cent annually over the last five years.
Just to give you an idea of the kind of returns that a Systematic Investment Plan (SIP) in the fund can deliver, especially if you hold your investments through down markets, sample this: Had you started a Rs. 10,000-a-month SIP in the Franklin India High Growth Companies Fund at inception, you would have a handsome Rs. 23.7 lakh today. That’s an Internal Rate of Return (IRR) of 24 per cent. The benchmark, CNX 500, delivered just 13.6 per cent through SIPs. This fund is, therefore, a ripe candidate to buy through the SIP route.
Its risk-adjusted return measure (Sharpe ratio) is also higher when compared with its peer group. On a risk-adjusted basis, Franklin India High Growth Companies Fund scores better than most large-cap peers, but lags behind mid-cap funds. But that is only to be expected as it is not a pure mid-cap fund.
The fund managers seeks to invest in companies with sustainable competitive advantages – proprietary intellectual property, strong management, distribution/cost advantages, or entry barriers that are specific to the respective sector.
Franklin India High Growth Companies Fund also dynamically manages its market cap allocation based on market conditions. The graph below is suggestive of how the fund increased mid-cap allocation between 2010 and 2011 when valuations were attractive.
As of February 2015, 62 per cent of the fund’s total equity holdings were in large-cap stocks, 22 per cent in mid-cap stocks, and 6 per cent in small caps respectively. The fund holds a compact portfolio of just 35 stocks over 16 different sectors. Its top 10 holdings account for 42 per cent of its portfolio. The fund has consistently adopted a buy and hold approach since inception. It also sports a low portfolio turnover ratio (just 0.61 times in last 1 year).
Like most other funds, the banking and financial sector remains the fund’s top pick. Information Technology (IT) is the second largest sector, followed by pharma, auto, and construction materials.
Axis Bank, Maruti Suzuki, SBI, Idea Cellular and TCS were some of its top picks in the large cap space. Whirlpool India, TVS Motors, Sanofi India, Bayer CropScience, and Mindtree were some of its top picks in the mid-cap space. R Janakiraman and Roshi Jain manage the fund.
*Mutual Fund investments are subject to market risks, read all scheme related documents carefully. Past performance is not indicative of future results. To know how to read our weekly fund reviews, please click here.