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Aarati Krishnan

GIVEN the decline in broad market levels, this is a good time for investors to build cautious exposures in equities.

The Templeton India Growth Fund (TIGF), an equity fund, seems to qualify as a good investment candidate for those looking for diversified equity investment. After a bad run in the first two years of operation, the fund has consistently and significantly outperformed the narrow market index over the past three years.

Suitability: With significant positions in cyclical and economically sensitive stocks, the fund is a good complement to diversified equity funds such as Pioneer ITI Bluechip and Zurich India Equity Fund, which hold a substantial portion of their assets in technology stocks.

However, the exposure to economically sensitive stocks makes the fund quite vulnerable to any setback to the economy, resulting either from a war or from continuing recessionary conditions. Investors can, therefore, consider holding this fund in addition to some defensive stocks in their portfolio.

Performance: For those who have held this fund since launch (September 1996), the holding period returns of around 14 per cent generated by the fund, may not appear too impressive. The NAV stands at around Rs 12.4 per unit currently, after a dividend of 15 per cent in April 2000. Since the end of 1998, the TIGF has generated a holding period return of around 87 per cent, against a 33 per cent return on S&P CNX Nifty.

Portfolio: The TIGF subscribes to the "value style" of investing, which means it focusses on picking stocks that appear undervalued in relation to the market and to their growth potential. In fact, a rigid adherence to this philosophy led to the fund losing out on much of the gains available in technology stocks in 1998 and early 1999.

Its performance since 1999 benefited from a couple of factors. One, being an early entrant to cyclical stocks, TIGF has been able to capitalise on the sharp mark-up in the valuation of cyclical stocks since 2000. Second, the fund has since moved on to a more flexible investment style, picking up a few exposures in the technology, pharma and FMCG areas.

In contrast to many of its peers, though, the portfolio continues to be dominated by cyclicals.

By end April 2002, cyclicals accounted for just over 55 per cent of the net assets, with auto, chemicals, oil and gas and aluminium being significant sectoral exposures.

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