All weather long term wealth creator
Head – Equity
WF: Markets once again rose close to their January highs and valuation concerns have once again started doing the rounds, even as oil prices continue to be a cause for concern. Are the Dec quarter earnings numbers giving you confidence on earnings momentum that can justify these levels or are you concerned about markets running ahead of fundamentals?
Jinesh: Globally, markets have seen the return of volatility after a sustained period of a low volatility environment. This has reflected in the Indian markets as well. Currently markets have been focusing on short term news flow on a wide variety of aspects ranging from geo political tensions, oil prices, US interest rates, and more locally domestic political moves amongst others.
We continue to believe in the India growth story and see green shoots in corporate earnings. We believe that the corporate sector is at the cusp of a significant earnings recovery in the coming quarters. The long term opportunities and secular growth prospects are clearly visible in many of the themes that we are currently looking at. We have been advocates of long term equity investing ever since we commenced operations in 2009. So, we are not worried about the short term hiccups in today`s market environment.
WF: Some experts are getting worried about deteriorating macros while others say it’s nothing but a storm in a tea cup. What do you make of the macro situation and how might this impact our markets going forward?
Jinesh: India has been a stand-out investment opportunity for domestic and global investors ever since 2013 when global events led to a significant deterioration on the country`s fiscal position. Since then a series of policy measures have made the economy better position to manage global stresses.
We believe India`s fundamentals remain solid. The economy continues to remain highly dependent on domestic consumption and hence will remain insulated from external shocks. Crude oil could throw a spanner in growth rates but India`s fiscal position is more robust today than it was 5 years ago.
WF: What is your overall market outlook for the next 12-18 months and what do you see as the key drivers going forward?
Jinesh: The corporate earnings season begun with prominent results in the information technology and financial sectors. Large bell weather stocks in these sectors have beaten market consensus estimates and our internal estimates. The performance of portfolio companies is encouraging. As the results season unfolds, we should get better clarity on the overall performance for companies.
The IMD has forecasted a normal monsoon for the year. Historically, consumption has done well in normal & above normal monsoon years. While it is too early to be conclusive, high frequency statistics on consumption trends have shown improvements. We continue to believe in the rural consumption story that is expected to play out over the next few quarters.
We believe that rural centric policies undertaken in the run up to the 2019 general elections, will bode well for rural spending for the next few quarters. The economy continues to stand on a solid macro foundation and political stability.
We however continue to expect elevated volatility levels in the equity markets. Systematic investments into equity products could help investors ride out short term volatility.
WF: Coming to your Focus 25 Fund, between large and midcaps and between cyclicals and defensives which way is it currently leaning?
Jinesh: The fund philosophy targets a benchmark agnostic, high conviction ideas investment strategy aimed at identifying stocks based on their ability to grow earnings on a sustainable basis. All this is managed while maintaining a high degree of liquidity and robust risk management protocols. Currently the fund holds ~65% in large caps with the balance spread across mid-caps.
As a fund house, we have been bullish on the consumption and rural theme. Hence our portfolios would typically lean towards cyclical stocks with subtle exposures to defensives purely from a portfolio construction standpoint.
WF: One would have expected a concentrated bets fund to have a much higher beta – what explains a beta of close to 1?
Jinesh: As highlighted above, the portfolio construction plays a critical role in managing risks. The fund has delivered significant alpha generation over 1 year without compromising on risk metrics at a portfolio level. This has resulted in favourable risk adjusted return. The fund is focused yet adequately diversified taking positions in stocks which complement the rest of the portfolio in a manner that minimizes sustained downside risk.
WF: 1 yr and 3 yr performance numbers are well ahead of the large cap index as well as a broader market index. What in your view are the factors contributing to healthy alpha?
Jinesh: As Axis, we primarily follow bottom-up stock selection approach with a minimum 2-3-year view on stocks. Bias towards high quality and growth with strong fundamentals are the key look outs for our fund managers to select companies for their portfolios. Our approach with quality has enabled us to navigate through pockets of pain in the market.
There are four principles that the investment philosophy at Axis is driven by. These are:
About 80% to 90% of our portfolio is based on this philosophy and have been continuing with it since our inception in 2009.
Quality has been an all-weather wealth creator for long term investors despite several blips in performance. While uncommon, these blips in performance have not eroded the wealth created during the market upswing. Further it is important to note that companies labelled as quality are fundamentally driven rather than by sentiment and hence the volatility quotient of these stocks remains relatively lower as compared to momentum and value driven stocks where asset pricing is dependent on subjective factors.
WF: Sectoral composition is reasonably close to benchmark – do you strive to create alpha through stock selection alone while keeping sector weights close to benchmarks or is this a “best ideas, go anywhere” kind of a pure bottom-up fund?
Jinesh: The fund as mentioned earlier follows a benchmark agnostic strategy. The portfolio is broken up into 3 categories,
In each case the fund targets a pure bottom up approach to investing factoring the quality parameters and ensuring a portfolio construct with inherent risk management attributes.
Past performance may or may not be sustained in the future. Sector(s) / Stock(s) / Issuer(s) mentioned above are for the purpose of disclosure of the portfolio of the Scheme(s) and should not be construed as recommendation. The fund manager(s) may or may not choose to hold the stock mentioned, from time to time. Investors are requested to consult their financial, tax and other advisors before taking any investment decision(s).
Statutory Details: Axis Mutual Fund has been established as a Trust under the Indian Trusts Act, 1882, sponsored by Axis Bank Ltd. (liability restricted to Rs. 1 Lakh).
Trustee: Axis Mutual Fund Trustee Ltd.
Investment Manager: Axis Asset Management Co. Ltd. (the AMC)
Risk Factors: Axis Bank Limited is not liable or responsible for any loss or shortfall resulting from the operation of the scheme. This document represents the views of Axis Asset Management Co. Ltd. and must not be taken as the basis for an investment decision. Neither Axis Mutual Fund, Axis Mutual Fund Trustee Limited nor Axis Asset Management Company Limited, its Directors or associates shall be liable for any damages including lost revenue or lost profits that may arise from the use of the information contained herein. No representation or warranty is made as to the accuracy, completeness or fairness of the information and opinions contained herein. The AMC reserves the right to make modifications and alterations to this statement as may be required from time to time.
Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.
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