The markets have been on a downward corrective journey for the past four months. Relentless selling from FPIs, underwhelming corporate results, a slowing economy and weak consumer sentiment continue to weigh on equities. Given the volatile movements in frontline indices, conservative investors may be inclined to pick firms with steady cashflows.
Steady dividend payouts and stable margins are generally indicators of a financially strong company. Usually, the companies paying higher dividends are relatively less volatile and deliver steady rather than outstanding returns.
Investors with moderate and conservative risk appetites can consider dividend yield funds for their portfolio.
In this regard, Templeton India Equity Income can be a good addition from the dividend yield category, given its ability to deliver steady above-average returns over the long term without taking too many risks.
Investors can also consider starting an SIP (systematic investment plan) in the scheme with a long-term perspective of 7-10 years for their satellite portfolio. Those with lump-sums can deploy the funds in a phased manner.
Solid performance
Templeton India Equity Income has a track record of over 18 years. Although it is benchmarked to the Nifty 500 TRI, we have compared its performance with the Nifty Dividend Opportunities 50 TRI as well. On a point-to-point basis the fund has delivered 3-7 percentage points more than the Nifty 500 TRI. In the dividend yield category, it is among the top couple of funds in terms of returns generated over the long term.
When rolling returns are taken, the fund has consistently performed better than both the benchmarks mentioned earlier. When 5-year rolling returns over January 2013 to January 2025 are considered, Templeton India Equity Income has beaten the Nifty 500 TRI nearly 67 per cent of the times and the Nifty Dividend Opportunities 50 TRI almost 92 per cent of the time. The average 5-year rolling return for the fund over the 12-year period mentioned above is 15.3 per cent.
Over the past 10 years, SIP investments in the fund would have generated a return of 19.2 per cent (XIRR), which is quite healthy even by regular diversified equity category standards. SIPs in the Nifty 500 TRI and Nifty Dividend Opportunities 50 would have given 15.6 per cent and 17.8 per cent, respectively.
Templeton India Equity Income fund has an upside capture ratio of 90.9, indicating that its NAV rises less than the benchmark during rallies. The scheme has a downside capture ratio of only 51.9, suggesting that the scheme’s NAV falls much less than the Nifty 500 TRI during corrections. A score of 100 indicates that a fund performs in line with its benchmark. These observations are based on data from January 2022-January 2025.
Steady portfolio
As a dividend yield fund, the scheme invests in stocks and sectors that typically have high cashflows. But the fund juggles sectors smartly so that those not favoured by the markets do find too much weightage.
Power and software are two sectors that have generally figured among the top couple of holdings of the fund over the years. In recent months, Templeton India Equity Income fund has increased exposure to REITs (real estate investment trusts) that offer good yields, and the gas sector. Exposure to diversified FMCG companies – which have had a rough run in recent months – have been somewhat moderated, though the segment itself is among the top segments held.
Embassy, Brookfield, Nexus Select Trust REITs are the holdings of the fund, given the regular payouts that these instruments offer.
Templeton India Equity Income also increases cash positions at times. The fund increases cash holdings to 5-6 per cent of the portfolio when a defensive approach is required to insulate the portfolio from market gyrations.
Another interesting aspect of the fund is its overseas stock and fund holdings. In areas such as IT Hardware, industrial manufacturing, food products and consumer durables, the fund invests in overseas stocks, given the limited opportunities to invest in these segments in India.
The investments are predominantly in stocks listed in Taiwan and Hong Kong. MediaTek, Novatek Microelectronics, Fila Holdings, Xtep International Holdings, Thai Beverage PCL and Xinyi Solar Holdings are some overseas stocks that feature in the fund’s portfolio.
Since dividend yielding stocks are usually in a somewhat mature stage of their business lifecycles, returns can be low or modest in rallying markets. There can be periods of underperformance, but the fund would be less volatile when indices fall heavily.
Over longer timeframes, Templeton India Equity Income is a steady compounder for investors.
With investments in quality dividend yielding stocks, REITs (real estate investment trusts) and a few well-known overseas names, the fund can be a good diversifier for investors with a moderate-risk appetite.
Why invest
Invests in stocks healthy cashlflows
Has a quality style focus with a value bent
Consistently beats benchmark on rolling and SIP returns basis
