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AGR case: Investors of Franklin Templeton are advised to stay put

Updated : January 21, 2020 07:32 AM IST

Last week, the Supreme Court refused to review its decision in the adjusted gross revenues (AGR) case which dealt a body blow to the telecom companies. Between Bharti Airtel and Vodafone Idea, it is the latter which may find itself at the end of the road given that their AGR liability equates to over 2 times its current market capitalisation.

Besides the banking sector, it is the mutual funds that have an exposure of over Rs 3,300 crore to the beleaguered telecom major.

What followed the Supreme Court’s decision on Thursday was a swift write-down of Vodafone Idea’s debt by Franklin Templeton in six of their schemes. Franklin not just marked it down to zero, they have also restricted fresh subscription.

The other AMCs such as UTI, Nippon India and Aditya Birla Sun Life Mutual Fund have taken mark-to-market (MTM) hits in accordance with valuation by rating agencies.

In an interview to CNBC-TV18, Manoj Nagpal of Outlook Asia Capital and Feroze Azeez of Anand Rathi Financial Services discussed what the existing investors in these affected schemes do.

Nagpal advised investors of Franklin Templeton to stay invested. “It started in February 2019 when the rating action started and schemes had been marking down exposure or the values in the schemes. So, there was a 20 percent mark down earlier and then again another 20 percent in August-September. So the values had been marked down to around 65 percent of the original value and this was creating a little bit of panic in investors and with the Supreme Court ruling, they have suddenly now marked it down to zero. So, for existing investors, what it means is that even if you exit now, you lose the entire gain completely. So, for existing investors, if Vodafone does not payback, there is no downside, and if it pays back, then there is an upside. So, in Franklin Templeton schemes clearly investors should stay back and not try to get out of the scheme at this point in time.”

Agreeing with Manoj, Azeez said, “On the Franklin Templeton products, an exit does not make sense because you are making it sure that even if there is a recovery, you get nothing out of it.”

Speaking about how an AMC decides its course of action in such cases, Azeez said, “Unless there are small periods where the swing could be dramatically different, something like this unfolds in a few months, it is just a weeks’ time, so, I think the better strategy would be Franklin Templeton strategy. The one with the highest exposure, the UTI Credit Risk Fund which has 17 percent and it has chosen to mark down 10 percent. So, even if a person wants to redeem before January 23, he can still save himself 7 percent, which means that the person who has been the long term investor, gets a large proportion of Vodafone in his portfolio. So, 7 percent is a large amount of money for you to play this bet for. I think UTI should have also, in my opinion, marked it down to zero so that people do not come in and go out.”
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