Madhu Suthanan : How is Franklin AMC different from Templeton AMC? What is the equity structure of FAMC's Indian operations?
Nilesh Shah: There will not be a new AMC. Franklin is the owner of Templeton group of mutual funds. In India, Templeton Asset Management Company is all set to launch Franklin Brand of Mutual Funds. TAMC will continue to manage both Templeton and Franklin brand of mutual funds.

Now that you are the chief investment officer, what will be your investment strategy?
Templeton worldwide is associated with the value investing philosophy. This actually means a long-term vision on investment. This is a painful process for a retail investor especially when he has seen technology and growth stocks giving astounding returns in such a short time. Franklin mutual funds are looking to provide growth investment philosophy to investors. This will provide a diversification to investors. They can be present in both value and growth sectors of the stock market and reap the benefit of diversification.

Franklin in India will concentrate upon the growth stocks and try to do a bargain hunting in those stocks. It will also be a nimble-footed player to take advantage of arbitrage/short-term opportunities in the market. Franklin funds will try to fill the gap of low risk market return product which is not available at present in the Indian mutual fund market. We would like to target people who are looking at average equity market return without high risks over a long-term investment horizon.

Since TAMC has not really made an impact through value investing, are you going in for a new venture with a different philosophy?
No. It will be unfair to say that Templeton has failed to make an impact through value investing. If you see the performance of most of the schemes in the last one year, TIGF is more or less in line with the top-performing funds. The perception is the base NAV. If NAV of the fund has grown say from Rs 20 to Rs 40 it is same as moving from Rs 6 to Rs 12. Unfortunately, people start looking at the absolute number as the measure of performance which is not correct.

Regarding TIGF, it had a philosophy and the risks which it had taken was limited. The super normal returns which investors got from software, FMCG and pharma sector was coupled with higher risks. The average volatility of a software stock is much higher than a value stock.

Till now, we have only seen the brighter side of high tech stocks. Most of them are at a valuation which is mind boggling and at least one thing which is sure from this point of time is that we are not going to see a repetition of past performance (returns in the range of 1,000 per cent and like that) of going forward. At best, they will be a market performer not outperformer by a wide margin. For eg, Infosys cannot grow at the same rate as it has grown in the past. If that happens, then we are looking at Infosys taking over India's GDP in next five year's time. We firmly believe that mutual funds are there to provide risk diversification which individual investor may find it difficult to achieve.

What will be your marketing strategy for the funds under FAMC banner? Who are your potential investors?
For the funds to be launched under the FAMC banner, we will be targeting retail investors who are interested in market returns with market risk. As I said earlier, we would like to provide a low risk market return product to investors on a long-term basis. This will be a product where you can put your parent's money with maximum comfort.

Don't you think the stock market is overheated at the moment?
No, I do not think that the market is overheated at the moment. There are definite signs of recovery on economic front. Cement, auto, metals are doing well apart from technology sector. The FIIs will become big buyers after January 1, 2000. Consider the following, - New allocation for India by FIIs will be made at the beginning of new year - The high cash balance which is maintained by the funds to meet Y2K related redemption pressure will have to be invested after the new year ie, extra cash will be available for investments - The delaying of Morgan Stanely Emerging Market index to include Malaysia, which would have reduced corresponding weightage of respective countries including India, to May 2000 from February 2000 will also result in higher allocation for India.

Moreover, the Goverment is on overdrive on reforms, liquidity in the economy is good and inflation and interest rates are both under control. I think overall, the general sentiment is fairly bullish.

I think the equity market will always surprise you. There is no guarantee that past performance will be repeated in the future. Equity is a long-term investment and cannot be compared on a short-term basis.

Which are the sectors and companies good at this stage?
Cement, selected software stocks, pharmaceuticals and couple of auto component companies are looking fairly good at this stage.

Don't you think that with too many mutual funds in equity markets and very few good scrips to chase it will lead to overvaluation?
Mutual funds are not the only investors. In fact, they being the institutional investor will provide two-way movement in the stock. If they are overvalued, they will sell and if they are undervalued they will buy.

Recently, many fund managers (basically finance personnel) from Indian markets have become regional and international managers. What is the reason for this sudden demand for Indian managers?
Simply because they are so good. They have the natural ability to trade and have very high grasping power which makes them ideal for emerging market investments covering various markets. Indians are natural traders and with their hard-working abilities, combined with analytical mind they are definite sure shots.