In an interview with ETMarkets, Gopani said, “We believe earnings will continue to lead the markets. The latest corporate earnings releases point to a healthy outlook for the markets contrary to consensus analyst expectations. » Edited excerpts:
July turns out to be a good month for the markets. Sensex and Nifty50 have recovered crucial resistance levels. Where do you see the markets for the rest of 2022?
So far, 2022 has been a year of significant consolidation. Much of the pain was caused by external factors. While frontline indices are down around 5% year-to-date (as of July 27, 2022), individual stocks are down between 10-50% and possibly more in the space of small caps.
After several years of strong returns, a 5% drop is a small blow. Consolidation so far has been stock-specific and, in our view, is healthy for the long-term health of the markets.
Going forward, we believe earnings will continue to drive the markets. The latest corporate earnings releases point to a healthy outlook for the markets contrary to analyst consensus expectations.
This gives us confidence that H2 will probably be better than H1. The markets have already digested several macroeconomic negatives.
“ Back to recommendation stories
The Rupee took a beating in July as it broke through the 80 mark against the USD in July but remained fairly stable against other currencies. Where do you see the rupee heading in the near future? Are there any data points investors should follow?
INR was one of the best performing currencies. From an external point of view, a stable currency is the hallmark of a well-organized economy.
The RBI has managed the currency to limit the volatility of the currency unlike other economies. The US dollar has appreciated significantly in most major currencies and India is no different.
In relative terms, the INR continues to maintain its strength against most trading currencies on a relative basis. The buffers built up by the RBI through foreign exchange reserves are used to ensure that the foreign exchange markets are
Due to various economic factors, the typical tendency of the INR is to gradually depreciate by 4-5% per year. However, this is not done in a straight line.
The depreciation of the INR observed over the last year is a normalization and we should be aware of it.
Shareholding data seems to suggest that FIIs may sell but increase stakes in some of the mid-cap companies. Although the broader market has underperformed benchmarks in recent years, do you think it’s time to increase the weighting of small and mid caps?
Small caps are more of a stock-specific structural story. You always see in times of crisis; that new investment opportunities emerge due to pessimism.
Here, I don’t believe consensus views should be followed, because of the first-mover advantage. We are constantly on the lookout for opportunities with a 3-5 year outlook and as opportunities arise we participate meaningfully in these growth stores.
For the uninitiated investor, investing in small and mid caps is very dangerous without adequate time and resources devoted to analyzing investment opportunities and would advise investors against doing so.
What do you think of the June quarter results so far? Do you think earnings will suffer for the remainder of FY23?
Although it’s too early to tell, earnings so far have been reasonably good. Management comments at all levels highlighted inflation as a key risk to the projections.
At present, the full impact of inflation on corporate earnings remains uncertain. However, investors lowered their expectations, leaving managements with enough leeway to beat analysts’ expectations.
We look for companies that have the ability to transparently pass on costs and capture additional market share in their respective industries. We believe these are the types of businesses that are likely to benefit disproportionately as normality returns.
As long-term investors, we are comfortable with companies taking their time to create leverage for the next phase of growth and we will continue to support portfolio companies in their respective growth programs.
We receive around Rs15,000 cr each month in SIP. This is an encouraging sign which also means that retail investors are now more confident and informed. Retail investors replaced FIIs to become the backbone of D-St. How do you see this pan out in the near future?
I would like to refer to an article I read in the news about this fact. The article says exposure to REITs has fallen to 19.5% of NSE 500 companies, while domestic mutual funds hold about 8%.
While the persistence of retail SIP flows bodes well for Indian equity markets from a stability perspective, I wouldn’t go so far as to say retail is the new backbone.
We remain price takers as a class of investors and will do so for the foreseeable future. We are about to start the wealth creation journey for most Indians.
The first step in stock market initiation and education is a job well done. The next step is to create long-term sustainable wealth.
As mutual funds, our job is to channel investors’ wealth into avenues where we believe long-term growth will create significant wealth over a reasonable period of time.
In the current market situation, which pockets are you betting on? Which would you avoid and why?
Domestic demand remains strong. High-frequency indicators such as auto sales and GST numbers point to robust growth in both volumes and net income.
We favor the domestic demand story and since many of these sectors are now attractively valued given their growth prospects, we hold them in all portfolios.
Our allocations in consumer stocks have been specifically skewed towards companies that have the ability to pass on price increases given the current inflation landscape.
In the financial sector, improving asset quality in some names has so far resulted in strong operating results. The sector has always been a favorite of REIT investors, hence the large scale sale of countries which has had a disproportionate impact on the sector.
The underlying fundamentals of the banking sector remain strong and so we have added a few names to this space.
Our portfolio allocations to the banking space are tilted in favor of large banks, as we believe these banks are better positioned in the market post-COVID.
Finally, we are maintaining our conviction game on the digital trends that are currently emerging in the economic landscape. Many of these companies also have non-cyclical export stories.
Our allocations to certain IT companies are purely stock-specific strategies and in stories that we believe are likely to be disproportionate beneficiaries over the medium term. As a reminder, our strategy remains specific to equities and independent of the sector.
Finally, what is your mantra for picking winners in your portfolio? Are there any specific metrics you see before making a buy or sell decision?
Axis MF’s investment philosophy is a fundamentals-based and research-driven approach to investing.
a) By nature, we are high conviction investors seeking to identify strong and sustainable businesses.
b) Our emphasis on portfolio construction revolves around the thesis that stock selection is the key to wealth creation.
c) The fundamental nature of our research aims to identify a group of companies whose main attribute is financial strength.
d) This, coupled with management’s ability to focus on company assets and exploit opportunities, provides us with a portfolio of companies with strong financial metrics and a long-term sustainable growth trajectory .
e) The companies in our national portfolio today encompass a range of growth ideas ideally suited to take advantage of the gaps left by weaker incumbents and seize opportunities. The core part of our portfolio is made up of companies that emphasize quality and to which we continue to cling.
(Disclaimer: The recommendations, suggestions, views and opinions given by the experts belong to them. These do not represent the views of Economic Times)