Bird and Buffalo check out a franklin Fund

The bird was not very happy with the World Cup cricket team. The buffalo is generally unhappy, but was particularly unhappy that VVS Laxman didn't find a place.

They were in Goa quietly watching the match against Sri Lanka, until Sehwag got out clumsily setting the bird off into tantrums.

"What can you do now with Sehwag," the bird cried, "We are hoping to win the World Cup and our opener is trying new ways of getting out every match."

"But once upon a time, the guy used to demloish bowling sides," the buffalo was setting her up.

"But how long can you rest on your laurels, there are others waiting in the wings," she was n't convinved.

"Seems what hit Franklin India Prima has hit Sehwag, too," the buffalo gets to the point.


Buffalo Banter:

It is hard to miss the similarities between Franklin India Prima and Virender Sehwag. Both were big hitters and had their day in the sun. And then, for the past year or so both have failed miserably. And Sehwag might have managed one last chance for old times sake from his captain and selectors, are there reasons enough for investors to repose similar faith in Franklin India Prima?

ET Quarterly MF tracker doesn't seem to think so. The latest edition out last week rates the midcap scheme as Silver, meaning just avereage performance on a risk adjusted basis.

The fund's performance over last one year has been below average. It gave 14.6% returns during the one year period. During this period, it trailed both its benchmark and Sensex. While the fund's benchmark S&P CNX 500 gave more than double at 29.4%, sensex returns were almost three times at 42%.

The scheme's Silver rating actually owes a lot to its three year performance, which is far better in comparison. During this period, the scheme's returns at 40.5% pa comfortably beats the benchmark and Sensex, which gave less than 35%pa in last three years.

One of the main reasons for near term under performance by the scheme could be its size. At Rs 1,791 crore, the size of the fund is weighing it down rather than being an advantage given the fact the fund operates in the midcap space.

The fund manager admits that size does play a role, as it is getting difficult for them to build adeqaute stocks to invest in the mid and small cap segments.

Also some of the manager's favourites for a long time like Torrent Pharma(2.78%), Cummins India (2.7%) were dragging along during the last year. Also, a few other calls during the year didn't click hitting the returns. Both these stocks took heavy beating during the correction in May 2006, but have since recovered. The fund manager is still bullish on these stocks.

The scheme generally tends to take a smaller exposure over a larger number of companies. A few larger companies in the mid cap space like Aditya Birla Nuvo(7.5 %), India Cements(5.3), Jaiprakash Associates ( 6.6%) and Ipca Labs (5.3%) have exposure of over 5% of the portfolio. The remaining assets are spread across 30 to 35 smaller companies. The fund aggressively books profits. As of Jan 31, the portsolio included 55 stocks

At present , the managers are bullish on sectors that can piggyback on the domestic consumption theme such as retail banking, consumer goods and automobiles; trends in domestic infrastructure spending such as construction and capital goods. They also believe companies benefiting from the outsourcing theme may offer investment opportunities for long term investors.

At the time of launching the fund, it was India's first open end fund and the name reflects the same. The name also supposedly signifies its focus on unearthing quality mid and small cap stories ahead of the market. Though fund management is not cricket, as it's hard earned money of investors at stake, just like Sehwag Franklin India Prima seems to deserves another chance. For years, the fund has been one of the top return earners under one of the longest serving fund managers in the industry KN Siva Subrmanian, who has been managing the fund since its launch. Impeccable consistent record over many years, stability in fund management and the resurgence in the midcap segment seem to be reasons enough to stay invested in Franklin India Prima despite its near term underperformance.

Bird is an optimistic fund manager. Buffalo is a cynical retail investor.
Here’s what they have to say about Birla Sun Life Tax Relief ’96 this week
Sundaresha Subramanian
Mumbai, January 29, 2007
”CAN SOME questions really change a person’s life?” asked the bird, still in the
midst of her KBC hangover.
“Such questions will not change anyone’s life,” the buffalo was his usual self.
“C’mon, be serious,” she wanted an answer.
“Actually, it’s the answers you give that change lives,” that’s as serious as he
could get.
“Exactly, Birla Sun Life Tax Relief ’96 is the ‘one size fits all’ answer to all your
tax questions,” she squeaked.
“This must be true as many people seem to believe that. More than Rs 130 crore
has poured into your fund in December alone,” the buffalo faked a surprise look.
“Didn’t I tell you? Be wise and put your money in BSLTR ’96,” said the bird. “After
all, the scheme was a topper on the return charts in ’06.”
“Magnum Tax Gain gave a tad better than BSLTR ’96. But are good one-year
returns the only reason the corpus has zoomed from Rs 60 crore to Rs 195 crore in
31 days?” he was going for the jugular now. “Is the buzz about dividend
announcements whipping up all the interest?”
“Whether some questions change lives or not, they really change a person’s
mood for the worse,” said a visibly upset bird and flew away.
BUFFALO BANTER
Tax planning fund managers often get cryptic and philosophical when asked about
dividends and their relation to corpuses. But it is common knowledge that tax
planning schemes declare huge dividends in the months leading up to March. Funds
follow Sebi’s regulation of closing dividend record within five days of announcement
— in letter. But the story is different in spirit.
Distributors literally sell the scheme, saying that a good part of the money will be
returned to investors in the form of dividends. And this arrangement benefits all
parties involved — the taxpayer can get an exemption for the full amount invested,
though he gets back a considerable sum; distributors get their commissions upfront
and the scheme’s corpus gets a boost. This explains the sudden spurt of interest in
this ET Silver scheme.
The BSLTR ’96 scheme is an erstwhile fund of Alliance Mutual Fund which was
taken over by the Birlas. The Silver rating reflects the fund’s average performance
in the long term in terms of risk-adjusted returns. During the three-year period, the
scheme gave a return of 36.6% p.a. Though this was better than the returns given
by the fund’s benchmark BSE 200 (29.2% p.a.), it fell short of the average returns
given by the tax planning category at 41% p.a.
The fund had a very poor year in ’05. Its returns were among the worst in the
category. BSLTR ’96 gave just 31% returns during calendar ’05. This happened at a
time when the ELSS category was riding the bull run, giving an average return of
over 51% p.a. Magnum Tax Gain, the top-performing ELSS fund of ’05, generated
whopping returns of 96% p.a. as its mid-cap picks clicked well. BSLTR’s exposure in
pharma stocks was a real drag. Also, some of its long-term picks were flat during
the year, according to the fund manager.
Jayesh Gandhi, who took over the scheme amidst this chaos, managed a
remarkable turnaround in ’06. Pharma stocks were dropped — from a high of
around 17% of the portfolio in mid ’05, the sector now accounts for less than 2%.
Also, mid caps like Taj GVK Hotels & Resorts and ING Vysya did well for the fund.
These stocks almost doubled during the year. ICICI Bank (4%) and Reliance
Communications (3%) were outperformers in their sectors. Aditya Birla Nuvo was
another outperforming stock, said the fund manager.
As a result, the scheme has given a return of 42.7% over a one-year period. Only
Magnum Tax Gain has given better returns among tax planning schemes, at 44%,
during this period. BSLTR’s returns also beat the benchmark BSE 200, which gave a
return of 38.7% during this period.
Mr Gandhi handed over the baton to Ajay Garg in September ’06. Mr Garg has
been with the AMC for the past four years; he has come up the ranks and has
handled various responsibilities in trading and derivatives. He has been managing
the fund for only three months; hence, it’s too early to make a judgement on his
stock-picking skills.
This being the tax season, the scheme merits a consideration by investors. If the
high cash position of around 15% is any indication, investors may get the benefit of
a dividend payout. The returns have also begun to look up, which a dd to the fund’s
appeal.

Bird and Buffalo, where it all started

Bird and Buffalo was conceived and created on top of a water tank overlooking a campus on a hill on the backdrop of the palace of an erstwhile ruler of the princely state of Dhenkanal, now part of Orissa. It was subsequently published in a local students journal and was modified many months later to suit the readers of a specific vertical of a financial paper, which the author was working for at the time