Franklin India A(Ydis)GBP

Analyst Report
Morningstar's Take
|09/11/2023

by Ramanand Kothari
Franklin India continues to benefit from a veteran lead manager, a sizable onshore investment team, and a sensible, well-established investment process. The strategy continues to earn People and Process Pillar ratings of Above Average and Average, respectively.

Lead manager Sukumar Rajah has been at the helm of the strategy since its inception in October 2005. In his three-decade-long investing career, he has gained an extensive understanding of Indian equities. Rajah has also been instrumental in creating Franklin’s Indian equity franchise and investment process. He continues to impress us with his investment insights and local Indian market knowledge. Since February 2018, he also has been the lead manager for the Templeton Asian Growth strategy, where he continues to spend more than half of his time. That strategy has remained behind the benchmark (MSCI AC Asia ex-Japan) under his watch, and we view it as a distraction. Our concerns don’t extend to this India strategy, as Rajah remains on top of portfolio holdings, and we remain confident in his capabilities as an Indian equity manager. He is also closely supported by Murali Yerram, one of the longest-serving team members with 15 years of industry experience. Though he is less proven, Yerram comes across as a capable investor with a good hold of the portfolio holdings. The managers draw on a 17-member Chennai-based Franklin India team, one of the largest dedicated teams among the offshore Indian equity category peers. This team sports an average of 18 years of industry experience and eight years of firm tenure. It has been stable until recently, when it saw nine departures (including four portfolio managers) between 2021 and October 2023. Encouragingly, it remains stable in 2023 and added one junior analyst. Reassuringly, the team has backfilled all the positions on a like-for-like basis, and we remain confident in Rajah's leadership and the broader analyst pool.

The strategy employs a bottom-up, quality-growth approach that focuses on companies with durable competitive advantages, high return on capital, recurring earnings, free cash flow growth potential, and quality management. Beginning in 2019, the team members introduced a 7% benchmark-relative underweight limit because of the increasing concentration of the MSCI India Index. It allowed them to invest in index heavyweight Reliance Industries, which previously they avoided on quality concerns. During our recent year’s meetings, the managers stated that Reliance has shown progress on quality parameters, and they positively view its green energy business. A few other positions in the fund also show some inconsistencies in sticking to the process' quality criteria. Nevertheless, it’s a well-run investment process that has consistently adhered to its core investment process.

The strategy has delivered solid results under Rajah’s tenure. From Nov. 1, 2005, through Oct. 31, 2023, the clean W(acc) GBP share class returned 12.67% annually, beating the MSCI India Index by 146 basis points and ranking in the 13th percentile within the India equity Morningstar Category. That said, relative performance has been lumpy in recent years, with occasional stock-selection challenges.
 
Morningstar Medalist Rating™Remains a good offshore India equity option.
To find out how Morningstar rates a fund click here.
Morningstar Pillars
PeopleAbove Average
ParentAverage
ProcessAverage
 
Morningstar Medalist RatingMorningstar assigns the Medalist Rating to funds that are qualitatively and quantitatively assessed through manager research and algorithmic processes. The assessment turns on three key “pillars” – People, Process, and Parent – that yield an estimate of how well a fund will perform before fees but after adjusting for risk.
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