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The 2008 financial crisis left deep scars on global markets. But for Rajasa K, it became a defining moment that forged her investment temperament. Joining Credit Suisse just months before the meltdown, she learned early on that prudence, research and quality never go out of style.
Today, as Vice President and Portfolio Manager at Franklin Templeton, Rajasa oversees 12 funds with assets under management (AUM) of around Rs 37,000 crore. Among them are the four-star-rated Franklin India Equity Hybrid Fund and the Dynamic Asset Allocation Fund of Funds.
In this conversation, she reflects on the current mood of the market, how her early lessons continue to guide her and why hybrid funds matter more than ever. Here's the edited excerpt of our conversation.
How have your experiences at Jefferies and Credit Suisse shaped your current investment philosophy?
I joined Credit Suisse in 2008, just a few months before the financial crisis hit. You could say those initial years gave me a sense of prudence, of being careful about what kind of companies to look at. The focus was on good-quality names, corporate governance and identifying businesses that could survive choppy times. That experience helped me build portfolios based on such characteristics, forming a very solid foundation as I saw different market cycles.
The second thing is diligence in research. Having been a research analyst for a fairly long time, and even now, that forms a strong building block for me as a portfolio manager. Those are the two key aspects that helped shape my approach.
How would you describe your investment style? Is it more valuation-driven, growth-focused or a blend of both?
I think it's a blend of growth and value, and we incorporate that in a few of our funds as well. My favourite investment philosophy is to find companies with reasonable growth visibility over the medium to long term, available at palatable valuations.
Having said that, one does need to go a little beyond that. You can look at traditional value names going through certain cyclical tailwinds, even if their longer-term growth opportunities may not be significant. At the same time, high-growth companies in a disruptive phase—those that are the businesses of the future—require a different frame of mind to include in a portfolio. You need to keep that perspective to build a complete portfolio.
How do you view the markets? Do you think the worst is behind us, or should investors stay cautious?
It's always hard to call a market bottom, but I would say we're in a situation where markets can remain volatile and range-bound for the foreseeable future. There are two aspects to this. Heading into the end of 2024 and early 2025, India's growth itself started to slow. Now, we have the additional aspect of global uncertainty driven by the trade war situation. Putting these two in context, I feel we may be entering a zone where markets remain volatile.
While there are some positives, such as easier monetary policy and tax cuts introduced in the budget, the overall picture suggests corporate earnings growth in FY26 may disappoint to some extent—maybe not to the extent of FY25, but this year could also see earnings disappointments. While India is relatively better placed compared to other countries and our valuation multiples may not decline further, from a benchmark perspective, I think markets may remain range-bound for a bit.
If corporate earnings are likely to remain weak this financial year, what could trigger an upswing in the markets?
A few things could act as triggers. There could be two policy stimuli: fiscal and monetary. While fiscal stimulus has weakened compared to the last three or four years, as the government focuses on maintaining a tight fiscal deficit, on the monetary side, we've started seeing growth-supportive actions through rate cuts and liquidity measures. If these have an immediate impact, leading to a V-shaped recovery, that could be a trigger.
Improvement in consumer spending in the next quarter or two could also be a good trigger for the market. The consumption basket, especially for low- and middle-income consumers, has been weak for the last few years post-Covid due to high inflation, increasing EMI burdens and low income growth. If this suddenly recovers—say, during the upcoming Diwali season—that could provide a trigger.
The third trigger could be a rapid de-escalation of global uncertainty or a favourable trade deal with the US that not only negates negative tariff impacts but positions India to benefit from the trade situation.
When selecting stocks for a hybrid portfolio, do you use filters different from those for a pure equity fund?
Let me walk you through the hybrid funds at Franklin Templeton. They fall along the risk-return curve at different points. At the most conservative level, we have the Equity Savings Fund, with net equity exposure between 15-18 per cent. Next is the Franklin India Debt Hybrid Fund, with equity exposure between 20 and 25 per cent. Then comes the Balanced Advantage Fund, a dynamic asset allocator with net equity exposure ranging between 40 and 60 per cent. Finally, the Aggressive Hybrid Fund has equity exposure between 66 and 70 per cent.
These offerings cater to investors with different risk-return profiles. While constructing the equity sleeve for these hybrid funds, except for the Equity Savings Fund, which is the most conservative, the other three have an equity sleeve very similar to our flexi-cap fund. The strategy and stock selection philosophy are aligned.
However, we're more conservative for Equity Savings Fund, with a higher large-cap composition and a lower portfolio beta. For the rest, the market cap composition mirrors the benchmark, around a 70-30 split between large and small/mid-cap stocks.
Can you explain the flexi-cap strategy in more detail?
The philosophy we follow is to derive the bulk of our alpha from stock selection rather than active macro calls on sector or market cap selection. We use benchmark weights as guardrails, unless there are specific opportunities in certain sectors. In terms of style, we don't tilt heavily toward high growth or value. The bulk of the portfolio comprises growth-at-reasonable-price companies.
Is there a specific type of hybrid fund you believe is better suited for today's volatility?
That's a good question. In a trending market, you may not fully appreciate the utility of hybrid funds. It's in markets with reasonable volatility and range-bound conditions that hybrids shine, thanks to monthly rebalancing. In these times, I think the Balanced Advantage Fund is a notch higher because we incorporate market valuations into our asset allocation strategy, allocating more to equity when markets are down and less when valuations are high, giving a boost to fund performance.
You mentioned the Balanced Advantage Fund. Different fund houses have different models for managing these. Could you explain how Franklin Templeton approaches dynamic asset allocation within its hybrid funds, and how your team decides equity or debt allocation?
The philosophy behind our dynamic asset allocation is based on mean reversion. When market valuations are high, we reduce equity exposure, and vice versa.
Our confidence in the Balanced Advantage Fund comes from the long history of our Franklin India Dynamic PE Ratio Fund of Fund, launched in 2003, which has demonstrated the benefits of asset allocation over time. We look at the NSE 500 trailing price-to-earnings and price-to-book multiples, taking an average to arrive at the equity allocation quantitatively.
We also incorporate qualitative aspects, like the direction of corporate earnings, such as the percentage of corporates disappointing or the quantum of upgrades and downgrades each quarter and high-frequency economic growth indicators to guide our market outlook. These qualitative factors are layered over the model's suggestions.
The Franklin India Equity Savings Fund, which you said is the most conservative, faced performance challenges in 2023-24. Can you share the key reasons and any changes you're making to improve outcomes?
In mid-2023, we made changes to the Equity Savings Fund from a typical exposure of one-third each in equity, debt and arbitrage to cater to more conservative investors while retaining the tax benefits of an equity-oriented fund. This is why we reduced net equity exposure from 33 per cent to 15-18 per cent. This lower equity exposure impacted performance in strong markets like 2023-24. We also shifted the equity sleeve to a more large-cap orientation to keep the portfolio's beta lower. We plan to retain this conservative positioning going forward.
In your bottom-up approach, how do you focus on sector-specific opportunities in stock selection, and does the hybrid fund's dual-asset structure influence sector picks compared to a pure equity fund?
We select companies that can capture sector tailwinds or have management capabilities to gain market share in slow-growth industries, for example. The focus is on evaluating the strength of the business and management, with sector considerations overlaid. If a sector has clear tailwinds, we gravitate toward it and select the best companies to take advantage of those opportunities. The sector selection process for hybrid funds is no different from that of flexi-cap funds; it's very similar.
Also read: 'A stable rupee will drive India's real growth'
Disclaimer: This content is for information only and should not be considered investment advice or a recommendation.
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