‘Markets will remain noisy. That’s how you make money’: Axis MF’s CEO & MD B. Gopkumar on SIPs, volatility and investing

How are you assessing the current scenario, where markets have seen a drawdown for almost two years?

Even as the war clouds have dissipated, the world has become very unpredictable. India is staring at four big issues. Inflation and rupee depreciation are visible issues. Monsoon is a larger area of concern, with forecast of deficiency this year. The impact of delayed monsoons and deficiency of rainfall will be very critical going forward. The fourth is the impact of artificial intelligence (AI), which is not thoroughly researched. The impact of all these four factors on corporate earnings is not fully reflected. Companies that did well for the last three quarters during a tough phase will do much better than others. We continue to be cautious and are not projecting doubledigit earnings growth yet. The next three years should look much better, as long as we don’t have persistent global issues coming and hitting us.

India was primarily an infrastructureled economy between 2019 and 2023, with the government significantly increasing its spending on infrastructure. At the same time, the consumption side of the economy was beginning to strengthen following the Goods and Services Tax (GST) cut. It was an interesting phase in which the infrastructure cycle was already underway while the consumption cycle was gradually taking shape. That’s a good flywheel (selfreinforcing loop) for economies to do well. Unfortunately, we hit a bump on account “Markets will remain noisy. That’s how you make money” of global events. Once things settle down, there is no doubt the twin engines of infrastructure and consumption can provide a good platform for the economy.

RAPID FIRE
Q.A fund/product that you feel deserves bigger space in investor portfolios?

Large-and mid-cap funds since these also enable overseas exposure.
Q.If markets could talk, what would they say to investors today?
Sabr ka fal meetha hota hai (patience bears sweet fruit). The path may be bumpy, but if you remain invested, you will reach your destination.
Q.If your portfolio were a Bollywood movie or song, what would it be titled?
Dangal. Long-term discipline, patience, and resilience, not glamorous, but delivers a good win in the long run.
Q.One investing myth you want to bust?
You never lose money in fixed income.
Q.Any recent FinTwit narrative that makes you cringe?
SIP will not create wealth.
B. Gopkumar
MD & CEO, Axis Asset Management

What is your take on narratives around retail Systematic Investment Plans (SIPs) facilitating exit for foreign investors? What is your advice for retail investors?

Markets exist to provide exits to investors. Today, foreign institutional investors (FIIs) are selling while domestic investors are buying. There have also been times when domestic investors exited and FIIs bought. One must appreciate how much the depth of the market has improved. Over the last 40 years, India has built a very robust market platform, steadily improving regulations and greater transparency. When things get tough, all sorts of narratives start flowing. I have seen this cycle three-four times in my career. Whenever one-year returns turn negative, a lot of investors suddenly stop their SIPs. This is part of the markets, and will continue to happen. I tell all my investors, these are cycles, and phases of these cycles will test your patience, but when you come out of the phases, you will see better returns.

As long as you have your asset allocation in place, and follow goal-based investing, you should not get too disturbed about market noises. Markets will continue to be noisy, that’s the nature of the beast. If the markets are not noisy, you will not make money.

Three years on, do you think the fund house has done enough to earn back the trust of investors and distributors?

For the last three years, we have worked on strengthening and widening our structure. We roped in a set of leaders from diverse backgrounds with vast experience. One of the things we decided was that everybody in key functions should have at least 14-15 years of experience and set up a broad hierarchy. The idea was to help us build scale.

We have had numerous engagements with our investors, both retail and institutional. In our institutional business, we command 8-9% of the market share today. All the large institutions continue to stand with us. On the retail side we have focused on activating the distributors, undertaking large programs across the country. We have also had deep engagements with our fintech and digital partners. Fintech is one area we have worked extensively on. We are perhaps the only asset management company to develop our own digital properties for the mobile app and website, including AI capabilities. We firmly believe that our core is not just investments but also technology.

What have you changed in your investment framework to improve outcomes?

We have not altered our investing style. We maintain our quality and growth-led focus, but we have made some conscious calls on the valuation front. Our portfolios have become sharper in terms of active weights. Our active share in most of the funds is at 65-70%. Another aspect we strongly believe is that our equity funds are true-to-label. In our large-cap fund, for instance, we are 95% allocated to large-cap stocks. Not many funds follow this true-to-label approach.

In terms of our funds’ performance, people tend to judge based on the last three years. One must also look at the merit of the strategy. We have among the lowest volatility even when we have not taken cash calls. The performance will catch up if the product has merit. Many fund houses cannot sustain performance over the long run because the merit is poor, in terms of portfolio construction, stock selection, active share, and so on. We want to build portfolios that will remain resilient.

Last four-five years have been painful for us, but we have crossed that phase. Our belief is that our equity funds should do much better. A lot of our diversified funds have started doing well, particularly our multi-, large- and mid-and flexi-cap funds. I think this will be a comeback year for our equity strategies.

What are the priorities for the new chief investment officer, and what strengths does he bring to the role?

R. Sivakumar, our CIO, comes with a strong fixed income background. I shifted him out of fixed income three years back. He has been working with me on our overall investment capabilities and frameworks, particularly our equity funds. Fixed income managers come with a strong risk-reward framework. They are very grounded in guardrails. In India, many fixed income managers have become CIOs in the past.

Interestingly, Sivakumar started his career as an equity analyst. He brings strong capabilities on the research side. The understanding of fixed income managers for numbers is very strong. Equity managers understand businesses very well, but fixed income managers always look at the financials with a very different mindset, as if dealing with a borrower. Both come from different perspectives. If we can bring these two capabilities together, it can work wonders. One of the mandates for Sivakumar is to improve on the framework in our equity strategies. The idea is to be more consistent, without compromising on the merit of the product. We don’t want to flip-flop in our approach.

Axis MF retains its conviction in growth style, at a time when others have adopted diversified fund styles for consistency. Why is that?

Today, we have nine fund managers working for us, each has a distinctive style. You will observe that the commonality (portfolio overlap) in our portfolios is very limited. Unlike most fund houses where commonality will go up to 60%, our commonality across schemes is around 40%.

This is in sharp contrast to three years ago, when many of our funds were looking alike. This has changed since we have brought style diversification at the fund manager level. But we have strong guardrails that ensure the fund managers operate within the overall framework.

We have also strengthened our research. Three years ago, we had only around 180 stocks across our funds; today we have almost 430 stocks. From around four people, today we have 12 people in the research team.

Axis MF’s fixed income strategies are on a strong footing. What is the framework guiding your calls in this space?

Devang Shah, Head of Fixed Income, and his team have done an extremely good job making the right calls on duration. We have very clear guardrails in fixed income. We are not chasing returns in this category. Almost 90% of our fixed income assets are corporate investors, not retail. We don’t want to be retail oriented, because then one ends up chasing returns and facing accidents. We are clear that we don’t want to cross beyond a certain risk threshold in terms of credit ratings.

There is no point taking unnecessary risk in fixed income. It is a myth that you can’t lose money in fixed income, because finally it is a credit product.

When will Axis MF launch Specialised Investment Funds (SIFs)? How do you view SIFs, and what approach will your funds take?

The SIF space will reshape existing fund categories. Arbitrage fund is one category, which will get rewritten. If you can give 200-300 basis points higher return for the same risk as arbitrage funds, money will shift to SIFs. Some of the hybrid fund categories may also be relooked. An investor who came into mutual funds 10 years ago is today looking to diversify risk. So, a new set of investors will come in. The product will evolve over time. Today, there are seven categories in SIFs. Some more will come in.

We are very clear that we want to be a very serious player in this space. First, we need to create a set of certified distributors. It will take nearly one year for distributors to get certified. I want to reach a point where we can raise meaningful sum in the SIF space. That’s the reason we are waiting to launch.

Internally, we have been running a live portfolio for nearly 14 months in both hybrid and equity-oriented SIFs. It is not a back-tested portfolio. It is a running portfolio, which has done extremely well. But we want to get the distribution right and only then go ahead.

We have a separate team for this. SIF needs very distinct capabilities, even the back-end operations team has to understand futures and options (F&O). Both my risk and operations department is certified in the SIF space. Once we are comfortable in terms of processes, we will start. After we get the approval, we can get four-five funds off the ground.