K N Sivasubramanian, co-fund manager, Franklin India Smaller Companies fund is also CIO, Franklin Templeton Asset Management and is responsible for overseeing all the local equity funds. Over the past two decades he has witnessed at least three boom-bust phases and underlined the bottom-up style of investing which is the hallmark of Franklin Templeton.
Your investment approach?
The universe of smaller companies is bigger as compared to that of larger companies and offers a wider choice for stock picking. The overall investment strategy is in line with the Franklin Equity (India) style of investing: A bottom-up approach to stock selection investing across industries with an aim to provide adequate diversification. Our stock picking is focused on merits of individual businesses with an eye on long term performance rather than short term momentum.
How do you mitigate the risk of illiquid stocks?
We believe that in this space, superior risk adjusted returns over market cycles can be achieved through research and focus on fundamentals. We focus on quality small- and mid-cap companies which have the potential to deliver over the medium- to long-term and avoid exposure to companies with uncertain business models.
Your investment universe?
We define smaller (small and mid cap) companies as the ones which have a market capitalization below that of hundredth stock in the S&P CNX 500. These companies can exhibit very high growth rates, at the same time may lack the consistency in earnings displayed by larger companies. Such companies are typically under researched and under owned. Historically, small and mid sized companies have exhibited a much higher growth rate than their large-sized counterparts as they transition into tomorrow's market leaders.
Then why is Bharti Airtel is conspicuous in your portfolio?
As part of its asset allocation, the fund has some flexibility to invest in large caps for liquidity reasons.