Franklin Templeton eyes equity opportunity in India
Fixed income specialist Franklin Templeton is seeking to highlight opportunities in both domestic and international equities to investors in India – a traditionally tough sell.
Vivek Kudva, managing director of the firm’s India unit, knows that getting Indians out of short-term bond funds won’t be easy. “In a market such as India, where you can get an 8-9% bank deposit rate for one year, selling equity funds to investors has been challenging,” he tells AsianInvetsor from the company’s Mumbai office.
“But if you look at equity markets globally, different markets have performed well in different years and you can see that with each year the winners rotate. Hence, there is a good story about the diversification that equity can achieve.”
His team is particularly focused on promoting opportunities in US equities. It comes after the S&P 500 Index rose 31.3% last year, by Bloomberg data, while the US economy continues to lead developed market recovery from the 2008/09 global financial crisis.
Franklin Templeton boasts a US Opportunities Fund, a Luxembourg-based vehicle. Last June, it launched a feeder fund into that to make it available to Indian investors.
Kudva suggests that if demand for offshore equities proves sufficient, the next step would be to introduce a European equities fund, although there is no timetable for such a plan.
But overseas equities remain of niche appeal in India. According to the Association of Mutual Funds in India (Amfi), feeder funds investing into overseas mutual funds represent less than 1% of the asset management industry’s $143 billion in AUM.
Of that overall asset base, equities represent just 17%, of which the bulk is made up of fixed income funds and money market funds. Equity funds suffered $1.2 billion in outflows last year to end-November, against a $22.4 billion inflow into moneymarket funds.
Nevertheless, Kudva’s team has embarked on a slew of roadshows across eight Indian cities to tout the benefits of equity investing, to investors as well as to distributors and independent financial advisers that it works with nationwide.
The message his team is sending is that if investors want a return higher than inflation – which in India stood at 11.24% at the end of November, with the benchmark repurchase rate at 7.75% – then equities are better placed than fixed income to provide that over the longer term.
By promoting equities, Franklin Templeton is also seeking to better balance its own assets under management. At present it manages a $4.5 billion fixed income book, dwarfing the $2.5 billion it manages in equities.
On the domestic front there are hopes that India’s equities market, which has rebounded more than 16% since mid-August, will continue its revival. India's Sensex Index rose 7.5% across the whole of 2013.
This could be driven by improved sentiment in the run-up to the May general election, where Narendra Modi, leader of the Hindu nationalist Bharatiya Janata Party (BJP), is seeking to unseat Manmohan Singh of the Indian National Congress as prime minister. Modi is promising to usher in reforms, quash corruption and alleviate the nation’s structural economic problems.
Aside from equities, Kudva says the firm is looking to introduce domestic mezzanine debt to Indian investors. It is also considering launching private equity funds targeted at high-net-worth individuals as the firm moves to branch out from its fixed income bias.