Zee, DHFL, IL&FS crises exemplify poor corporate governance; 'big worry' for investors: Franklin Templeton

Mumbai: Franklin Templeton Investments India, which is the largest foreign fund house operating in the country, Tuesday said recent corporate events exposing the follies in governance are a “big worry” for investors. The comments come amid difficulties being faced by the Subhash Chandra-led Essel group or the Wadhawans’ DHFL and the ILF&FS crisis, which have been facing liquidity issues leading to investor concerns. “It is a big worry for us in terms of the strength of governance,” Franklin Templeton Investments India chief investment officer Anand Radhakrishnan told reporters. He said while the country has been very quick to adopt governance practices, events like these will test the quality of the adoption of such governance framework. As a practice, the fund house with 35 funds here, actively votes on every proposal of an investment company, he said, stressing on better governance at invested companies. [caption id=“attachment_5251861” align=“alignleft” width=“380”] Representational image. Reuters.[/caption] Radhakrishnan claimed it is the fund house with a maximum number of voting decisions against management. It can be noted that the past few months have seen massive erosion in stock prices of many companies following events at companies or sectors. While it was liquidity concerns followed by allegations which pulled down DHFL in two episodes since September, it was the promoters’ alleged mismanagement that has proved to be a drag on Chandra-led Zee group. Each of these instances has seen massive corrections upwards of 40 percent in a few trading sessions on the counters. “It is a big risk for investors,” he said, adding the fund house has also faced challenges. It believes in pushing a company hard or finds other companies to invest in when faced with a trouble, he said. Radhakrishnan said his fund house does not have any equity exposure to either Zee or DHFL, but may have some exposure to their debt. The equity market will be volatile till the outcome of the general elections in the summer and a clear directional move for the market will happen only after that, he said. The only negative for the markets will be if wobbly coalition forms the next government, he said, adding there is an 80-85 percent possibility of the ruling BJP or a Congress-led government being formed. Radhakrishnan said there is sufficient interest among foreign portfolio investors and they are also waiting for the outcome of the election. But he quickly pointed out that there is no problem in the macroeconomic fundamentals and sectors like auto, and financials will continue doing good, while infrastructure, healthcare and capital goods would be sluggishness. The hustings will impact only the sentiment, and the results can either be a booster or a dampener, he said, adding the probability of a good return after the election is very high. A senior fund house official said the small and mid caps have a larger scope of growing in 2019 after the rout in 2018. Radhakrishnan said from a long-term perspective, consumption, infrastructure and government reforms will be the primary factors driving the market in the long term. Franklin, celebrating silver jubilee in the country, has affirmed its commitment to continue keeping in mind the interest of investors without compromising on the governance at companies.