Not just oriental

NEW FUND OFFERINGS

Franklin Templeton India Equity Income Fund offers a balanced diet, blending the Indian and foreign flavours.

Emerging markets are sizzling hot. And even as foreign investors have poured in billions of dollars into Indian equities, investors at home have hardly had the option to ride the tide in other high growth markets around the globe.

However, thanks to the new regulations that allow Indian mutual funds to invest more freely in overseas stocks, investors should get a flavour of cuisines from all across the globe.

Last week, Franklin Templeton, had launched an emerging markets-focused fund -- Franklin Templeton India Equity Income Fund.

Benchmarked against the BSE 200, the fund will invest 20-75 per cent in large-cap stocks and up to 25 per cent in mid- and small-cap scrips. Further, it will invest up to 50 per cent in foreign securities.

"We would like to capitalise on the unique strengths of foreign companies," Chetan Sehgal, director - research, Franklin Templeton, says.

Sehgal's strategy is to construct a portfolio with a fair sprinkling of stocks that generate good dividend yield. Usually, dividend-yield scrip tends to do better than the market averages in a downturn.

According to a Citigroup research, for the year and a half ended September 30, 2001, which saw a market downturn in India, the top 25 per cent of high-yield stocks gave 54 per cent returns over the Sensex.

"Given the characteristics of high dividend paying companies, a focus on high dividend-yield stocks will protect your downside relatively better," Sehgal says, in the same breath, adding "There would be no conflict between dividend-yield and growth stocks, as we would be forecasting the yields of the companies for the next five years after discounting the growth opportunities".

Now, why foreign stocks? Currently, there are just 9 large-cap stocks, 30 mid-cap stocks and about 60 small-cap stocks with dividend yield above 5 per cent. The universe of high dividend-yield stocks is wider in other emerging markets.

For instance, India cement major Grasim currently offers a dividend yield of 0.9 per cent, while Thailand's Siam Cement gives 5.6 per cent. 
 

Same Sector Different League
	Dividend Yield(%)*
CEMENT
Siam Cement (Thailand)	5.6
Grasim	0.9
TELECOM
Magyar Telecom (Hungary)	7.2
MTNL	3.9
FMCG
Souza Cruz (Brazil)	5.8
ITC	1.2
FINANCE
Mega Financial (Taiwan)	6.2
SBI	1.4
CONGLOMERATES/PETROLEUM
SK Corp (South Korea)	3.1
Reliance	1.1
* Source: MSCI/Bloomberg (February 2006)

Moreover, at this point in time, the Sensex valuations look steeper than most emerging market and even some of the developed markets. The benchmark index currently trades at a multiple of 19.37 times trailing earnings, more than that of the Dow Jones industrial average at 18.69 and FTSE-100 at 14.98 as on March 16.

Besides, India is trading at a premium of 20-30 per cent over other emerging markets which makes the case for exploring these markets even stronger for domestic investors. The Brazilian market trades at a multiple of 12.35. Among other Asian markets, Taiwan and Philippines look attractive as they trade at multiples of around 10 times 2007 earnings estimates.

Global investors seem to be anyway pinning their hopes on emerging markets like never before. So far this year, emerging market equity funds have shot past the $20.3 billion of fund flows received for all of last year, which itself was a record year for fund inflows, according to Emerging Portfolio Fund Research (EPFR).

Even as the frenzy in emerging market continues, Templeton has offered a product to domestic investors as a starter that is easily digestible rather than getting carried away by the global opportunity and offering a five-course menu that could leave you in utter discomfort.

Given the fund house's track record and its global presence, it is reasonable to expect that the fund would meet its objective of steady returns.