Equity Markets Review - Investment Planning - January 2021

Markets saw a see saw move this month as participants exercised caution in the build up to the budget. FPI were large sellers partly on account of hedge funds reducing global EM bets due to shocks in the US markets. Trading post budget saw a spectacular recovery as markets retouched psychologically important levels.

Notably, the S&P BSE 30 touched the 50,000 mark for the first time during the month. While this is cause for joy across the investment fraternity, Index levels are just numbers and are not indication of valuations, rather a leading indicator of economic growth and market expectations. The performance of the equity markets reinforces the fundamental long term view on growth in India and the potential of Indian equity as an asset class.

In a bold move the honourable finance minister, Nirmala Sitharaman, delivered a pro-growth budget. Spearheaded by government spending on long term projects including infrastructure, the government aims to get the economy out of the Covid shadow. The budget also aims to build on the work done during the lockdown in supporting growth and making structural reforms.

The equity markets see the budget favourably primarily on 2 fronts – Higher capex spending by the government & status quo on direct taxes and no incremental taxes on capital gains. The booster shot by way of capex and a strong market signal to promote growth through structural reforms are key positives for domestic and foreign investors alike.

One of the key reasons for this revival is the successful transmission of lower interest rates to the economy championed by the RBI. Lower rates have started to show its impact on sectors like housing in select pockets where demand up until now had been lacklustre. With chances of vaccination improving in the near term, beaten down sectors like hospitality, travel & retail have seen a revival in the markets as participants have begun factoring the high economic multiplier effects of these industries.

Q3 earnings have been above consensus estimates. Cyclical sectors and companies who have proven market leadership have seen a good earnings quarter. We believe this is here to stay. While valuations remain elevated, equity markets are likely to continue to outperform as budgetary tailwinds aid economic growth and investors assign higher valuation premiums to FY22 growth.

Our portfolio stance has a distinct quality bias as we believe these companies are ideally suited to benefit from gaps left by weaker incumbents and capture growth opportunities. In line with the recovery theme as the economy returns to a mid-to-high growth environment, several domestic cyclicals are likely to be beneficiaries of the new growth cycle. The last 2 years have seen a large degree of cost optimizations and deleveraging play out and should further add a material fillip to growth stories in the post Covid environment.

While we anticipate volatility in the near term, this volatility is best served by staying invested rather than trying to time the markets. The longer term outlook for equities continues to remain intact. Short term volatility can be used by investors to top up their existing investments with a 3 to 5-year view.

Axis Bluechip Fund

The fund focuses on delivering superior risk adjusted returns. The fund manager targets out-performance to the benchmark while delivering risk that is lower than the benchmark.
Stocks are selected in the portfolio based on their ability to grow earnings on a sustainable basis from a medium term perspective while maintaining a highly liquid and risk managed portfolio. The expected earnings growth of the portfolio is higher than that of the benchmark NIFTY 50 TRI.
The strategy is to invest mainly in companies which operate in a secular growth segment and has leading market share in their areas of operation to provide steady returns and the remaining in companies that are gaining markets share due to differentiated offering or cost advantage, in large sectors expected to deliver alpha.
The portfolio retains a distinct large cap bias with current mid-cap exposure limited to around 20%. For its midcap allocations, the portfolio looks to keep a high hurdle in terms of quality and growth potential.

Axis Long Term Equity Fund

The fund is focused on quality companies having strong long term earnings growth prospects. Thus the fund maintains a stable core portfolio with relatively low churn. Within that objective, the fund is comfortable looking past shorter term volatility in performance.
With a medium to long term view towards capturing growth, the fund is biased towards stocks which can deliver superior returns. This includes private sector banks and NBFCs, autos and ancillary, housing & consumption sectors.
Normally, the fund has avoided highly cyclical stories and highly regulated sectors. The fund looks at opportunities across the market cap and the portfolio remains balanced between its large and mid-cap allocations.

Axis Midcap Fund

The fund focuses on investing in bottom-up stocks that provide potential to grow cash flows over the medium term. The portfolio seeks to add businesses with economic moats and distinct competitive advantage.
The fund remains true-to-label in its portfolio allocations with a diversified and risk-managed mid-cap portfolio which has a superior liquidity profile.

Axis Focused Fund

The fund manager runs a high conviction portfolio, containing the fund manager’s best ideas and invests in up to 25 stocks while ensuring reasonable diversification and focus on quality and risk management.
The fund manager looks at 3 broad buckets while constructing the portfolio. The core portfolio consists of steady compounders that can generate reasonable returns with low volatility. The alpha and emerging themes buckets consist of companies having a cyclical tailwind and emerging themes with high growth potential. We have rejigged our portfolio over the last few months as we look forward to the new cycle. The emphasis is on quality and growth with a 3-5-year view.

Axis Multicap Fund

Good ideas can do better irrespective of its sector/theme/size.
Axis Multicap Fund seeks to invest across the market cap spectrum in high conviction ideas with improved risk- adjusted return characteristics. The fund manager looks for stocks that are expected to report faster growth relative to the benchmark.
The fund as such is sector agnostic and focuses on a bottom up approach to invest in stocks that are at an inflection point such as market share gain, industry consolidation, sunrise industries, improved management focus and capital allocation or regulatory & policy changes.

Axis Smallcap Fund

Axis Smallcap fund aims to invest primarily in high conviction small cap stocks. The bottom up approach to investing seeks to identify long term businesses keeping in mind risk and reward by containing mistakes and navigating volatile stock movements.
Investing in small caps is not for the faint hearted. Key to successful investing is patience and ability to withstand short term volatility. Furthermore, small caps are a broader universe as compared to large & midcaps and hence the need for active management keeping in mind the opportunities in this space come with higher degree of risk as compared to their larger counterparts.

Axis Growth Opportunities Fund

Diversification is key to long term portfolio management. Indian equities currently account for just 3% of the total global market cap of the world. Axis Growth Opportunities Fund offers investors a unique opportunity to take exposure of global equities through a structured allocation by way of an open ended mutual fund.
The fund aims to invest 70% in domestic equities through a bottom up approach while the rest will be invested in global large caps. Overall the fund will maintain a compact portfolio of high conviction domestic and international companies hence offering investors a tax efficient yet unique investment proposition for portfolio diversification.

Axis ESG Equity Fund

Environmental, social change and regulatory response to them are happening faster than ever and poses sizeable challenges for businesses. However, many businesses remain focused on hard financial cost/benefit analysis while ignoring intangible costs like their carbon footprint or waste emissions.
The fund aims to invest 70% in domestic equities through a bottom up approach with an emphasis on ESG compliance while the rest will be invested in global ESG compliant largecaps. Overall the fund will maintain a compact portfolio of high conviction domestic and international companies hence offering investors a tax efficient yet unique investment proposition for portfolio diversification.

Axis Special Situations Fund

Disruptive trends have been driving change across all major industries creating potential investment opportunities both in India and abroad. A combination of government push, global investments, domestic ingenuity and focus on low cost, wide adoption models have already seen us coming up unique transformative solutions in India.
The fund endeavours to target disruptive growth opportunities across the entire disruption value chain both in India & abroad. Through a multicap approach the fund will identify disruptors, enablers & adapters while retaining our quality bias and investment philosophy. The international exposure will be managed in collaboration with Schroders our JV partner, a stalwart in global active asset management.