Jinesh Gopani, Head-Equity, Axis Mutual Fund, shares his investment strategy to stay at the top of the charts during Covid times. In an interview to Mint digital he says, “India has always been a stock pickers market and to that effect we focus on stock specific ideas for our portfolios rather than sector or market cap specific themes.” He also shares how the investors who stayed invested and continued their SIPs in mutual funds during these uncertain times are likely to benefit as the market rally broadens.
Axis Growth Opportunities Fund has given over 15% returns in the last one year while the category on an average has grown by 5%. Similarly, Axis Midcap Fund has has grown by 16% in the last one year, outperforming the category by five percentage points. Other equity schemes of Axis Mutual Fund are also well placed. How did you manage this feat?
We adopt bottom approach to investing. A key hallmark has been its benchmark agnostic portfolio construction approach targeting leaders and challengers. In an environment dominated by the unknown sticking to the market leaders and those with a proven track record has worked well both in rising and falling markets.
The strategy that has formed a core part of our investment thesis for the year is the ‘Survival of the fittest’. Even before the news on the corona virus and the subsequent shutdown, we were concerned about the quality and consistency of earnings that were coming through amidst the weak economic background. Fast forward to today, as we see earnings downgrades across the board, companies that have the ability to withstand the long term revenue vacuum are likely to be winners as the cycle recovers.
The trade over the last quarter has been to identify companies with high cash flows and low leverage. As companies navigate through the Covid 19, cash flows have been under stress, especially in companies that do not produce essential commodities and cyclicals. Adding to this stress is Debt. Highly leveraged companies will still be required to service debt and this is where cash flow management becomes critical.
On Axis Growth Opportunities Fund, the international exposure has worked well, supplementing the domestic portion, and that must be seen as the benefits of diversifying equity exposure. Taking advantage of global opportunities has provided investors with an opportunity to participate in global themes.
One-year performance of mid cap and small cap mutual funds has improved from negative to positive 11% and 13% respectively. Do you think these market caps are making a comeback? Is it the right time to invest in them?
We have been highlighting to investors over the last two years that markets are narrowing – i.e. the return composition is being driven by only a handful of companies. This trend is slowly reversing as the market rally is now witnessing a broader market recovery. We see opportunities across large, mid and small caps. India has always been a stock pickers market and to that effect we focus on stock specific ideas for our portfolios rather than sector or market cap specific themes.
There is a lot of discussion around sustainable investing through ESG Funds, during Covid times. Do you think India is ready for ESG investing? Axis ESG Equity Fund, a new fund launched in February this year has performed well especially in the last three months. What is the strategy? What kind of returns can investors expect from ESG Funds?
Axis ESG Equity Fund was launched in January 2020 as a natural extension of our investment philosophy. The thought process here revolved around the ever growing need from investors to be socially conscious investors. Globally this approach has been one of the largest beneficiaries of new assets and has forced companies to re-evaluate their business practices with an ESG lens. For long term investors, sustainability of investments is more important as compared to short term returns. The strategy aims to capitalize on this long term value creation that good quality companies with sustainable business are likely to deliver.
Pharma sector is topping the charts. Among the only few sectors which have given positive returns, pharma has grown by around 50% in the last one year. What is your view? Should investors invest in pharma sector mutual funds?
Every sector has a cycle. The pharma space has been lacklustre for the last several years. The COVID pandemic has brought back the spotlight on the sector. We remain stock specific and see opportunities in select stocks. The sector has been plagued with regulatory challenges over the last few years and that uncertainty quotient has not gone away. As investors it is imperative to keep your eyes peeled and ears to the ground at all times.
What is your view on the technology sector? Is it the right time to enter the technology sector through stocks or mutual funds?
The disruption driven by COVID has benefited the tech sector disproportionately as the world’s workforce augments itself to the ‘new normal’. Companies have adapted digitally to ensure business continues to operate with as little disruption as possible. IT companies in India are uniquely positioned to tackle the challenges and meet demands from their global clientele. For investors, equity mutual funds offer a one stop solution to benefit from actively managed strategies as professional managers take calls on their behalf to changing market trends and opportunities. While we do not advocate sectoral funds, we believe mutual funds are best suited for investors looking at an equity play rather than short term trends in the market.
Equity mutual funds have witnessed bleak inflows during the last two months, showed Amfi data. After four month low inflows of ₹241 crore in June, equity funds saw net outflows of ₹2,480 crore during July. SIP inflows have also hit 22-months lows of ₹7,831 crore in July. What is your view?
Mutual fund investors have shown maturity during this down cycle. Lump sum money is typically volatile and flows with market sentiments. A barometer for MF’s should be the SIP flows due to their relative longevity. SIPs have continued to remain despite market turmoil and investors who stood through ever since March are sitting pretty as they have captured much of the upside in this market retracement. A point to note is that while the frontline indices have largely retraced much of their March losses, many high quality companies still continue to trade materially below their March levels. As this rally broadens, SIP performance numbers are likely to look good for these investors.
What is your special advice to investors during covid times?
Stay invested, stay patient.