Corporate balance sheets and banks are in great shape, laying the foundation for a vigorous private capex cycle, Ashish Gupta, CIO, Axis Asset Management tells ET Wealth.
Do you think the delay in interest rate cuts by global central banks will affect equity returns?
Many economies, particularly India, are in an extended Goldilocks scenario and witnessing sound growth. The health of the economy is usually reflected in the markets and that’s why we have been witnessing notable or sizeable gains in equities. The delay in central banks’ rate cuts is a response to this robust growth. Following the sharp rise, equities are expected to undergo periods of consolidation in the near term.Which sectors or themes are you currently focusing on?
The construction cycle is already under way, with increased government spending on infrastructure and a revival in real estate. Corporate balance sheets and banks are in great shape, laying the foundation for a vigorous private capex cycle. We expect that the market trends will be shaped by positive cyclical trends, and sectors driven by capital expenditures, like infrastructure, locally focused manufacturing, and utilities, are poised to gain. Our investment strategies are aligned with this outlook, and we have a higher allocation in these areas. Additionally, we hold a positive view and an overweight position in the consumer discretionary sector, especially in the automotive and real estate industries. We are also looking at sectors such as energy, defence, and transport, which stand to benefit from government policies. With firms seeking funds for growth and new ventures, we expect a surge in credit demand, which is expected to enhance the banking sector’s results. In the pharmaceuticals industry, we anticipate the favourable pricing conditions to persist and intensify. Conversely, we are underweight on the export-oriented segment due to slowing global economic growth.How are you navigating the mid- and small-cap space? Are you concerned about the valuation premiums in these areas?
Mid caps and small caps have seen significant earnings upgrades, and this is partially reflected in their valuations. Market inflows in these categories have outpaced the earnings growth due to increased investor appetite for these funds. Consequently, valuations remain elevated, but pockets of opportunities do remain in these categories. Similarly, there are abundant opportunities within the large-cap segment as well.
How has the investing strategy of Axis Mutual Fund changed in the past year?
We have added fund managers through internal elevation and have inducted new talent as well. We have also expanded our analyst team and experienced professionals have joined us. This has allowed us to broaden our stock universe. Our aim was also to broaden the scope of investment strategies and we introduced new products like the Axis Business Cycles Fund and the Axis India Manufacturing Fund. By incorporating a range of investing styles and mapping for different fund managers, our products are today tailored to the needs of a wider investor base.
Will the conviction in growth style still run at the heart of the AMC’s philosophy?
Certainly. Investing cycles, by nature, witness ups and downs. Empirical evidence supports our thesis that growth and quality style of investing works very well, particularly in a high-growth economy like India, where businesses have the potential to deliver long periods of consistent growth. This will help achieve the twin objective of wealth creation and participation in the India growth story.
How will you address the high overlap in your equity funds?
We have been proactively and consciously bringing down the high overlap in funds. Bringing in diverse styles and the co-fund manager concept have helped us look at our style of investing from a higher level. In the past year, the overlap has already significantly reduced and we are now comfortable with how each of the individual strategies is positioned.
Will you give more freedom to individual fund managers to pursue differentiated investing styles?
Every fund manager possesses a distinct investment style which is evident in the funds managed by him. We want to ensure that one style does not get imposed on all products and there is enough diversity of styles and products. As a CIO, I must transcend personal biases towards specific investing styles and ensure dedicated oversight for each product. So, to answer your question, yes, fund managers are at liberty to pursue their differentiated investing styles within the broader framework of our investment philosophy.
Why is Axis Mutual Fund shifting focus to hybrid and passive funds?
Axis Mutual Fund has always been strong on the equity aspect of the business, boasting a diverse product suite in the actively managed space. We aspire to become an allencompassing AMC, catering to all your investment needs with a comprehensive range of products, including equity funds, debt funds, hybrids, passives, and alternatives. We already have a good spread of passives and hybrid products that we want to bring to the forefront. Focusing on these two is a good approach to reinforce our investment offerings, so that investors have an entire suite from the fund house to invest. We recently launched the Axis Nifty Bank Index Fund and you can expect more offerings in the passive segment from us.
