Ride out this trough patiently, and you will be rewarded, says Jinesh Gopani of Axis Mutual Fund

The policy action on corporate taxation is a big step by the government to regain the growth narrative.

ET Online
Mutual fund investors are a confused lot. Despite a slew of stimulus measures announced by the finance minister, the markets remain tense. Everyone is still waiting for firm cues on the growth front. Shivani Bazaz of ETMutualFunds.com spoke to Jinesh Gopani, head- equities, Axis AMC, for the answers. Edited email interview.

The corporate tax cuts seem to have improved the overall sentiment in the market. However, the market still seems nervous. How do you see the situation?
The policy action on corporate taxation is a big step by the government to regain the growth narrative. The government has given domestic manufacturing a sizeable push by bringing domestic tax rates in line with the average tax rates in the South Asian and East Asian region; thereby opening doors for FDI to cater to domestic and export markets on a large scale. Purely on account of tax change consensus EPS 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 by 10-12 per cent. A demand recovery during the upcoming festival season will further improve corporate earnings over the next few quarters.

The government got into a proactive mode and the finance minister is coming up with new stimulus almost every week. Do you think these measures are adequate to revive the sagging economy?


Growth up until now had seen a sustained slowdown on account of a series of domestic and international factors. To re-stimulate the economy as large as ours, the government needed several triggers and it has done so in a staggered manner post consultation with key stakeholders and industry participants. While this is a positive, only time will tell if these measures are sufficient. The market is recognizing the government’s efforts and that’s the critical piece.

The growth we saw from a $500 billion economy to a $2 trillion economy and the one from now to $5 trillion will confront the economy with different yet difficult challenges. The debottlenecking of the economy to face these challenges in a hyper competitive global setting, is what the government hopes to achieve through such large scale reforms.

In such a scenario, earlier advice would be to stick to large cap funds. Does this advice still hold?
I would like to go one step further than to pick a category of funds. Across market capitalization you have seen winners and losers. A common theme amongst the winners has been strong business models, transparent tax paying companies with a focus on growth and innovation. Our call is to invest in such companies.
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Given that the aim of equity mutual funds is to perform consistently over long periods of time, thus generating long term wealth, structural growth stories rather than cyclical short term stories are our focus points in our equity portfolios.

Many market pundits are predicting a revival in mid and small cap segments. Considering the economic scenario, do you think that will happen soon?
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 from the growth shock, such companies will be in a sweet spot to capture business opportunities in their respective sectors.

On a broader note, mid and small caps in general have seen a significant price correction over the last two years. We see limited downside from here for these companies.

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The government stimulus raises questions about its fiscal health. It will have a large impact on both equity and debt markets. What is your advice to mutual fund investors?
The recent 2-day spike is in the inherent nature of equity markets. The volatility of the asset class is also its biggest plus point. The reduction in corporate tax rates is widely perceived as a big positive on 3 counts – stimulating the economy, improving economic competitiveness and changing sentiments. While the cost of this in the short term means that fiscal slippage becomes a probable reality, the long term implications far outweigh the short term pain. The counter cyclical nature of this action was a necessary step in the eyes of the government to change the narrative of conversation and business sentiment and has naturally buoyed markets.

The story for both equity and debt markets remains positive. Mutual fund investors should ‘keep the faith’, and continue their investment journey as they have over the last 24-36 months. The great learning for mutual fund investors has been patience which they have done very well despite times of severe pessimism. As they ride out this trough, they will be rewarded as the economy, markets and business gets going.
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