MUMBAI: Stock markets have surged from their lows in July, but macroeconomic indicators are still weak. Chandresh Kumar Nigam, MD & CEO, Axis AMC, talks on the outlook and strategies for fund managers, and advice for investors.
What opportunities do fund managers see now, given the grim scenario of growth and earnings?
We see opportunities across the market-cap spectrum. Companies with strong business moats and credible and transparent business practices have been able to weather the storm and come out leaner and primed for the growth cycle. As the economy recovers, such firms will be in a sweet spot to capture opportunities in their respective sectors.
On the mid and small-caps, generalising the index performance as stock performance may not be the best way to approach portfolio construction. Amidst the carnage, there have been select opportunities for investors to thrive in firms with strong management pedigree, transparent operations and fundamentally sound balance sheets. We believe that today, it is a stock-pickers’ market.
Corporate tax cuts led to a sharp rally in equities, which was short-lived. Do you still see any long-term impact of the same?
The government has given domestic manufacturing a sizeable push by bringing domestic tax rates in line with the average tax rates in South Asian and East Asian regions, thereby opening doors for foreign direct investments to cater to domestic and export markets on a large scale. Purely on account of tax change consensus, Earnings Per Share moves up by 7-10 per cent. We believe this push is a vital sentiment booster and will positively impact earnings of companies in our portfolio. Further, the move will have long-term first and second order benefits that should accrue to companies, consumers and the government; in short, a win-win for all.
Through the volatile phase, fund managers have been asking investors to stay focused on asset allocation and investment targets. What is your advice for a lay investor, or the new investors coming through SIP?
The story for both equity and debt markets remains positive. Mutual fund investors should ‘keep the faith’ and continue their investment as they have done over the last 24-36 months. The great learning for mutual fund investors has been patience, which they have done well despite times of severe pessimism. As they ride out this trough, they will be rewarded as the economy, markets and business get going. Asset allocation should remain every investor’s mantra and the efficiency of this will get tested from time to time during up and down cycles.
Downgrades and defaults have been impacting quite a few debt funds over last one year. What safeguards are there for investors looking at them, especially when bank interest rates are heading lower?
On the debt side, investors, especially new age investors, have learnt a valuable lesson – you can lose money in debt! Unfortunately, they have learnt this the hard way. What is heartening to note is that many high-quality portfolio managers have been able to limit their downside and risk metrics through prudent diversification across sectors, issuers and rating scales.
Investors must evaluate the quality of fund managers and their experience in handling tough market conditions while deploying fund in debt.
Our portfolios maintain a high degree of diversifications at an issuer, group and sector levels. We achieve two positives from this: 1) In the event of stress, the exposure to a single group or sector should not significantly impact the larger portfolio; 2) diversification also helps us manage risk without sacrificing potential returns.
What has been your strategy for your top performing funds in the equity space?
We diligently follow our clearly defined investment process. We follow a bottom-up stock selection approach with quality and growth bias. We pride ourselves on building portfolios with a long-term investment outlook that are index-agnostic. Our approach to quality involves an in-depth understanding of the businesses. Firstly, we evaluate quantitative aspects like financials, past track record and other key metrics. Second is qualitative aspects like management credentials and potential of the business.
Investment flows into equities mutual funds have held up despite market volatility? Is it really a sign of investor maturity?
Markets have been on a roller-coaster ride over the last 18-24 months but that’s nothing new. However, through this phase, we have seen a consistent rise in equity assets for the mutual fund industry. A significant portion of this has been through systematic transactions (SIP). This was not the case in earlier cycles; so for sure there is greater maturity and comfort on the product from the investors. According to me, the true learning and investor maturity will come when the investors stay through the pain of a down cycle and reap the long-term rewards of investing in equities.