Templeton India Growth Fund: Hold

Recommendation: Hold

Suresh Krishnamurthy

FOR the investments in Templeton India Growth Fund to pay off, the assumptions on which its portfolio is based have to be realised, and value-investing must triumph over growth stocks.

Globally, Templeton Funds are known for their value-investing style -- meaning that they pick up stocks in which there is potential to unlock value. The portfolio of Templeton India Growth Fund at the end of June reflected this style. For example, the fund avoided the stocks of Hindustan Lever and Infosys Technologies, which together account for more than 20 per cent of the market indices.

The performance of Templeton India Growth Fund since 1999, compared to the market indices, has been good. However, the fund is considerably behind its peers. As such, while investors can hold on to their exposures, those with a larger share of their portfolios in the fund would do well to pare down their exposures to the fund.

Suitability: Given the quality of corporate management in India, the value-investing style necessarily eliminates most of the fundamentally sound stocks from the TIGF's investment universe. This has pegged the risk profile of the fund higher than the market average.

The fund does not appear to have rewarded investors for the higher risks borne by them. While more companies are, indeed, going in for corporate restructuring, their number is still small in proportion to the total number of companies. In short, the risk associated with value-investing continues to be high. In this backdrop, investors need to plan allocations to the fund depending on their risk preference.

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Portfolio allocation: The portfolio of Templeton India Growth Fund is fairly diversified. Around 31 per cent of the assets are invested in technology stocks -- close to the allocation to technology stocks in the Sensex. The other major exposure is commodity chemicals at 12 per cent. The rest is dispersed between several sectors. The top five stocks in the portfolio are Satyam Computer, Reliance Industries, HDFC, ITC and NIIT. The top ten stocks account for 60.15 per cent of the total portfolio.

Fund performance: The fund has appreciated close to 40 per cent since inception, assuming that the dividend of 15 per cent declared in April was not reinvested. If the dividend was reinvested, the return is lower. This is more or less the appreciation recorded by the S&P CNX 500 Index. The TIGF has outperformed the narrow-based Nifty and Sensex.

Background: The fund was launched in September 1996. It levies a load of 2 per cent on investments of less than Rs. 2 lakhs. There is no exit load for these investments. The fund's net asset value is Rs. 12.55 per unit. The fund manager is Mr. Mark Mobius.