My simple advice is don't time the market,” says Jinesh Gopani of Axis Mutual Fund
We spoke to Jinesh Gopani, Head-Equity, Axis Mutual Fund, to find out the secret behind the impressive performance of Axis schemes.
The numbers are quite bleak: Unemployment rate at 7.7 per cent; new investment proposals at the lowest levels in 14 years at 9.5 lakh crore in FY19; corporate earnings also so far do not look great; to top it, there is also a slowdown in consumption. Against this backdrop, where do you see equity markets going? Do you believe as a fund manager you have ample opportunities to make money for the mutual fund investors?
You are right. If you look at the high frequency data are weak and there are two to three reasons. First is the NBFC crisis which has taken the knock on the overall momentum growth which was there in the last two to three years. If you really see, the NBFCs have been growing at a very faster pace and they were fuelling the economy at the lower level of the businesses. For example, a two wheeler dealer financing, the real estate, loan against property financing which were done very selectively by the banks were done by the NBFCs who had come and were growing at 40-50 per cent rates. That has broken down after IL&FS crisis because the liquidity profile of all these NBFCs has been weak and now with the assets –liabilities mismatches (ALM) coming to the fore with no funding available from other sources like mutual funds, NBFCs are forced to slow down in terms of growth.
I believe that is one of the real pressure points which has accentuated the overall growth level being lower than expected at this juncture. Along with this, general demand destruction because of high oil price during the festive season of August and September further led to slowdown in the economy than what it was 12 months ago. I think all this data is bottoming out now because hopefully with the stability and continuity with the government, there would be measures by this government to streamline the economy. Whatever headroom is available in terms of resources the government would like to prop up growth and in two to three quarters time, we can see the same growth rate returning. To that extent I think, if the equity market is at a high and the economy is at low, which points that markets are ahead of the curve and markets are telling you that we are in a good momentum.
Our philosophy has been bottom up stock picking. We would like to buy businesses that are run by great leaders. If you see at least from our portfolio perspective, we have had a recent growth rate in our stock holdings even in the weak environment. We have out spotted the average industry level growth rate by a big margin. So, in that sense, stock specific there is a huge opportunity in terms of making money if you are holding those types of leaders.
Mid- and small-cap schemes have not been performing since January 2018. In the last one-year, the mid cap mutual fund category average return stood at -10.86 per cent and that of small cap funds stood at -17.10 per cent. In fact, all the schemes in both these categories are giving negative returns. What does future hold for these categories? Is it time for mutual fund investors to get into mid and small-cap funds? What is your view on the valuations?
Hopefully, improving macro by government support, the micro should also improve and earnings should come back even in mid and small cap. However, as I said earlier, it will take at least two quarters for the numbers to bounce back. However it is a good time if you have a three to five year view. But it is not a good time if you have a six month view. To that extent you can participate in mid and small cap funds. Ideally, I prefer multi cap strategy where you get best of both the worlds but with a three to five year horizon and not with six moth horizon.
Also, the valuations of mid and small caps are high because earnings are getting downgraded and PEs are looking high. As I said, because of the difficult macro, the micro of all these companies are not reporting growth rate which will commensurate with the valuation and hence they have not been participating in the market. Once the macro improves substantially, then all these companies will come back to higher growth trajectory than large caps and hopefully they should then start making money. One caveat is oil prices. Anything above 80 dollars will further put pressure on fiscal deficit side of India and then we will have to evaluate whether the momentum will come back or slowdown.
Axis Mid Cap Fund, Axis Small Cap Fund were the leaders in terms of annual returns in the year 2018. These schemes have maintained their positions as the category toppers. Axis Multicap Fund holds the second rank. What is your strategy to stay at the top? What will be your strategy to manage these schemes in future?
From last nine and half years, we have maintained buying into quality, growth and strong leaders as a strategy. We will continue to do that. We will look for new ideas either in mid cap or large cap space. We like companies who are doing innovation, which are trying to dislodge the exiting companies in the same sector. We would like to park our money in companies which can change as per business dynamics. Our strategy does not change that much, only the sizing of the portfolio will change depending on which sector at any given point of time will show growth. At this juncture, we are comfortable with financial sector, select NBFCs, consumption, some bit of cyclicals like capital goods and auto.
Large cap index funds have been outperforming the actively-managed large cap schemes for quite some time now. What do you think about it? Is the time ripe for the large cap mutual fund investors to consider index funds instead of the active funds now?
There is a debate between passive and active. It is too short a period of time to take an informed decision. We feel that passive has become bigger but active has a bigger role to play in India for at least next 10-15 years because the price discovery of stocks is still an opportunity for you to participate and make money out of it.
Also, once mid cap and small cap bounce back in their growth level, again you would see a stark difference between an active funds and a passive funds. Also at this point the money is flowing into the large caps and ETFs. Hence the money is fuelling the prices and again money coming into same stocks has led to large caps outperforming mid caps.
So, one-year is a very short time to decide about active vs passive. We still feel that active has enough role to play in terms of delivering investor returns.
There is a lot of nervousness in the market due to a series of downgrades. Lot of investors are calling their advisors to move out their money from mutual funds - be it equity or debt. What will be your advice to them?
Normally, there is always greed and fear. Unfortunately, only when markets hit new highs, new money comes in and when markets become nervous, people start exiting. Ideally, it should be reverse. Whenever there is market nervousness, people should invest more in good funds. And normally when there is a peak, you can book some profit but that does not happen. My simple thinking is if you take any period like five years, 10-years of 15-years of any fund which have been in existence. All the funds would have delivered close to 15 to 18 per cent CAGR returns. If any investor is happy with that kind of returns which is beating the inflation and nominal GDP, there is no question of not putting money or not holding onto such equity funds. Obviously when we start timing the markets, the problems come and people end up investing at higher levels and they don’t have the patience to hold on with three to five years view.
My simple advice is don’t time the market. Keep on investing on a regular basis and regular intervals be it monthly or quarterly and so on and see markets with a three to five year horizon, because there is always a cycle which goes into play. Like one year of Nifty can see stupendous returns and two years can be of consolidation. Unfortunately, timing the market leads to lower performance for an individual. Hence, it is better to park you money on a regular basis and capture both the upsides and the downsides.