Jinesh Gopani, Head (Equities) at Axis AMC talks exclusively to Paisabazaar.com regarding newly launched Axis Growth Opportunities Fund and how he believes the Indian economy will shape up in the long term.
Q- Investments of the newly launched Axis Growth Opportunities Fund will be almost equally split between large caps, mid caps and foreign stocks. What are the advantages of this distinctive structure?
Ans – When you invest in domestic markets, you are limited to certain themes that are unique to emerging markets like India. But there are various other themes that are not available in the domestic market for various reasons. For example, there are new technologies that are growing in importance worldwide, yet in India, it is the larger established players that are buying these smaller technology-driven companies or creating JVs with foreign players to deliver these technologies. This makes it difficult for investors to participate in these emerging themes through domestic investments. This is where our JV partner Schroders Investment Management comes in. It is a 5 year joint venture now and what they help us do is pick and choose some of the top international stocks from their international portfolio.
Our focus will be to choose investments that allow us to participate in themes that are not available in India’s domestic markets.
This is the primary factor that distinguishes this fund from others in the marketplace. Secondly, investors get the opportunity of global diversification. This way if domestic markets are in turmoil for whatever reason, the international investments can help save your investments. The other way around, if global situation is bad and domestic is good, then again you have 70% of portfolio invested in India. I think it is more to do with playing themes than diversification, but generally speaking, the idea is that to buy Alphabet, Apple, etc. These are stocks you cannot buy directly in India and our fund will help investors participate in such emerging themes.
Q – Are you also anticipating a certain degree of rupee depreciation?
Ans – No we are not taking any call on the Rupee. We will not do any hedging of the Rupee. For us, Rupee will be a pure conversion instrument. In fact, if you look at the 3 to 5 year historical rates, the Rupee has always depreciated by 3-4%. Taking that into account, we know that it can be a pain when the Rupee is weakening, but generally speaking we will not take any call with regards to the movement of the Rupee.
Q- Will the Axis Growth Opportunities Fund be a fund-of-funds structure with Schroeders Investment Management?
Ans – No. It is not a fund-of-fund structure. Our fund will, in fact, make direct investments into international markets. We will of course take the benefit of Schroders Investment Management advice and research for the selection of suitable foreign stocks to invest in. While they will be our advisors with respect to foreign securities, the decision to execute the orders themselves will be with us.
Q- Do you have a principle in mind when you decide allocation in foreign stocks?
Ans- No. There is no such principle in place. We would like to invest around 30% of assets in foreign securities, but we will do it slowly over a 4 to 5 month period.
Q – While it is clear that the Axis Growth Opportunities Fund will invest in foreign securities, are you interested in investing in a specific country or a set of countries or will the fund specifically focus its international investments on the US market?
Ans – We will be investing in global securities, but most new innovations are happening in the US and China, so foreign securities of these countries will form a major part of the portfolio and some of the other investments will be in leading European companies as and when suitable investment opportunities present themselves.
Q- Coming to the domestic market, NBFC stocks and certain banking names like Yes Bank and Kotak Bank have corrected significantly over the past month. You have roughly 7% exposure to Kotak Bank in Axis Long Term Equity Fund. What is your view on the financial sector?
Ans- As a general rule, we are very bullish with respect to private banks in India. I cannot however, comment on specific stocks in the category. Till date, we are very happy with the performance of private sector banks in our portfolio and we see that there is a structural story in place. Unfortunately in the near term, issues such as currency depreciation and rising interest rates can of course weigh down on the sector as a whole.
But when it comes to the long term view, we are very happy with banking stocks we are invested in and we believe that NBFCs and Housing Finance Companies will emerge as winners in the longer term.
Q- Apart from the financial sector, what other sectors are you bullish on in the domestic Indian market?
Ans- We are currently bullish on various domestic sectors as a result of strong earnings growth coming in. However as you are well aware, valuations are running high and with oil prices moving upwards globally and the Rupee depreciating, there has been a negative impact on the market.
Mid and small cap stocks have already corrected to a certain extent and even some large cap indices are beginning to show signs of weakness.
So, though as a general rule, we are bullish on the domestic market, the current macros make the environment tough for various domestic sectors.
Q- Do you also count interest rates as a major factor especially with respect to financial sector stocks?
Ans- In an economy, everything is interlinked to some extent.
So if there is a sudden and high interest rate hike it could have a negative impact, but if there is a gradual interest rate hike, I don’t think there will be a problem.
The more acute problem is that of volatility of the markets and general macro weakness due to rising oil prices. I think oil price is by far the biggest focus for us at present and as oil prices keep rising, it will adversely impact our fiscal deficit and become an even bigger cause for concern. This can have a negative impact on the economy as a whole too. We have seen this earlier too in 2008 and 2013. Whenever there is a macro weakness, it has an impact on markets – either in the form of sell offs or in the form of high volatility. And we have been saying for the last few months that volatility will continue and that’s what is happening right now.
Now the problem is, while many midcap or small cap stocks have undergone correction in the past six months, this correction has now spread to even good quality large cap stocks and as of now we have a market-wide sell-off on our hands.
Q- Axis Long Term Equity Fund, an extremely popular ELSS fund from Axis AMC has now grown to around Rs. 19,000 crores in size. However, its performance has begun to lag somewhat in the past 1-3 years, do you partly attribute this to the size of the fund?
Ans – I don’t think the fund’s performance has lagged.
If you see the 1 year, 3 year and 5 year returns data, you will find that the Axis Long Term Equity Fund is in the top quartile.
So we are not worried about the scheme’s performance and obviously size does matter, but as long as we are invested in a good company, we are not going to worry about short term volatility and we will keep growing at a decent pace in the longer term.
Date: 05 OCT 2018