Equity Review

Indian markets continued their upward recovery in the month of August driven by optimism across counters. The rally in Indian equities is in stark contrast to the rest of the world plagued by pessimism on account of inflation and recessionary fears. For the month S&P BSE Sensex & NIFTY 50 ended with gains of 3.5% each. NIFTY Midcap 100 & NIFTY Smallcap 100 ended the month up 6.2% & 4.9% respectively. FPI’s continued to be large buyers this month with a net inflow of Rs 56,521 Cr across asset classes.

GDP data for Q1 FY 23 was marginally weaker than consensus expectations. Given the volatility in data over the last few readings, the estimates miss was not significant. The confirmation of trend is the key takeaways for us in this quarter. As such, we believe that domestic demand will likely continue to provide a partial offset to slower external demand. Further moderation in global commodity prices also bodes well for near-term outlook.

GDP prints indicate domestic demand remains healthy, supported by private consumption growth. The weakness was primarily in the external sector and can be attributed to higher commodity prices (Faster import growth on account of higher cost of commodities imported). Slower than expected manufacturing sector growth also affected the overall GDP print. Oil below US$100 and the sharp fall in industrial metals imply this weakness will turn to strength in the next series of GDP prints.

The INR has been one of the most resilient currencies from the EM basket thus far. YTD INR has depreciated ~7% to the US Dollar backed by RBI interventions in the currency market. The effective use of forex reserves has achieved twin benefits of stabilizing the economy and bringing much needed confidence to external investors. A stable rupee has been a prime reason for the return of FPI’s and continued strong FDI flows into the country.

Credit growth in the economy has been growing steadily. The latest report on nominal bank credit shows year-on-year growth accelerated to 14.4%. The numbers have climbed steadily since the end of January. While demand led retail loan growth (Mortgages, personal loans etc.) have been strong, corporate loan books reflect a shift from debt markets and external commercial borrowings to domestic bank credit. Shift in corporate borrowing patterns are based treasuries optimizing their cost of debt.

Inflation remains a key risk to equity markets. While the RBI has successfully managed domestic inflation through monetary policy thus far, roaring inflation across the developed world continues to remain worrisome. Despite hawkish policies, inflation across developed markets continues to remain at record levels. Extreme effects of inflation and hawkish monetary policy can potentially ravage demand economics in these countries, resulting in knock on effects to countries like India.

Our portfolios represent our conviction of the ongoing domestic demand ‘revival’ story. While we remain cautious of external headwinds, strong discretionary demand evident from high frequency indicators and stable government policies give us confidence that our portfolios are likely to weather the ongoing challenges. Markets have already digested several macro-economic negatives. Going forward, we believe, oil inflation and currency will be key metrics to decide the trend for the Indian economy. While we keep a caution eye out for short term headwinds, we are now optimistic of an improving market trajectory.

 
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 S&P BSE 100 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 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 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 Multicap Fund
Indian capital markets offer a multitude of investment opportunities across the market cap spectrum. The fund offers diversified portfolio of equities within a predefined construct of large caps, midcaps and smallcaps. To ensure diversification of investment across market caps, the scheme will invest a minimum of 25% each in Large, Mid and Small Cap stocks, with the balance 25% flexibility to the fund manager. 

The fund aspires to capture potential opportunities throughout the lifecycle of the company’s progression from smallcap all the way to a largecap. Through this approach the fund aims to achieve a quality centric long term portfolio with an improved risk reward profile and controlling fund volatility typically faced during fund rebalancing.

Axis Flexicap Fund
Good ideas can do better irrespective of its sector/theme/size. 

Axis Flexicap 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 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 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 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.

Axis Quant Fund
An explosion in data has resulted in a change in the investment paradigm. Fund managers today increasingly rely on large scale data collation and inferring high quality actionable insights can often become challenging. A structured use of quantitative techniques can aid your investment journey.

The Axis Quant fund aims to leverage Axis AMC’s fundamental research base and strategically use quantitative data to offer a fundamentally driven alpha strategy with an endeavour to generate consistent alpha for long term investors. The offering blends traditional research based approach with rules based criteria to identify stocks and sectors within a well-established quality framework.

Axis Value Fund
Value Style with a difference. The fund offers a differentiated strategy that improves on traditional value investing to avoid its pitfalls. We believe that the singular focus on valuations that typical value strategies adopt is misguided since valuation has to be seen in context with the health and future potential of the business. Many low valuation businesses are in essence value traps – i.e. destined to remain cheap forever given their poor fundamentals.

 
As a result, we believe that to work, the portfolio needs to use a more evolved process. The approach that Axis intends to use is to look for companies that combine strong fundamentals with reasonable valuations which we believe have the potential to generate long term wealth generation as the prospects of these business gets unlocked or as the economy/ sector goes through its growth phase. The process will incorporate filters to ensure that the fund does not allocate to companies with poor financial strength.