We're cautiously optimistic and playing recovery theme: MD-CEO of Axis MF

In a Q&A, Chandresh Nigam of Axis Murual Fund says high-frequency indicators on discretionary spends such as auto sales and realty absorption figures point to strong pent-up demand

Excessive pessimism in March led to market levels that look unwarranted now, says CHANDRESH NIGAM, managing director and chief executive officer, Axis Mutual Fund (MF). In conversation with Ashley Coutinho, he says high-frequency indicators on discretionary spends, including auto sales and real estate absorption figures, point to strong pent-up demand. Edited excerpts:

Indian equities have seen sharp rebound from their March lows. What is your assessment?

In March, the sharp downward movements were knee jerk, in part due to several unknowns. Overt pessimism led to market levels that, in hindsight, look unwarranted since the impact on companies was less than market estimates. Investors were unable to factor in the extent to which businesses would adapt. Coupled with global liquidity slush, equities around the world have seen a strong pull-back. As we speak, markets have wiped out the March losses. Earnings on the domestic side, as well as early channel checks with dealers and customer-facing businesses, indicate encouraging signs for consumer demand. Our fund managers have been cautiously optimistic and are playing the recovery theme through sectors that were unduly beaten down in the downturn.

What are your views on corporate earnings?

The earnings season kicked off with companies delivering robust numbers across several key sectors. Sector bellwethers across auto, banking, and consumer beat analyst estimates on most counts. Notably, high-frequency indicators on discretionary spends, including auto sales and real estate absorption figures, point to strong  pent-up demand. While much of this was expected in the build-up to the festive season, follow-through commentary from the management on the ground gives us confidence. We believe demand recovery is on track and is likely to reflect in the third quarter and fourth quarter numbers of this year.

The industry has been on the back foot on the debt side, with defaults and downgrades in the past two years. What are the learnings?

As Indians, our understanding of fixed income was akin to investing in fixed deposits (FDs). In the aftermath of the credit issues that hit the industry, investors were left flummoxed since their understanding of debt funds was incomplete. The industry since then (including us) has been hard at work to give a complete picture to investors about the benefits and more importantly on the risks of investing in debt schemes.

The fixed income universe is vast. We offer a wide variety of solutions covering the length and breadth of this asset class.

Our job today is to help the investor identify the type of asset class within the fixed income universe that meets his/her investment criteria. Credit funds of the industry have been tarnished by the negative publicity. As product providers, we are working hard to correct that perception.

We have seen outflows in equity-oriented schemes in the past few months. Will the trend continue in the months ahead?

The general trend in equity schemes across the industry has been positive. Over the past three months, investors have been concerned about a range of issues, including valuations, the Covid-19 pandemic, and the US elections. The industry has seen positive inflows month-on-month for the past three years or so, which speak volumes about how the retail investor has matured in the pursuit of wealth creation in equities. Short-term profit-taking is not unjustified in an environment of rising uncertainties.

Equity investing and MFs are here to stay and inflows are only going to get bigger as both reach critical mass and wider acceptance. As India returns to normalcy, equity investing in India remains the best way to build long-term wealth for Indians.

What factors will help the industry grow in the coming years?

Growth in assets under management is a function of investor appetite for MF products and increasing penetration. Digitisation has led to a significantly wider reach into the hinterland. Today, the industry is roughly Rs 28 trillion and penetration is yet to reach critical mass. The Indian MF story is far from over and will be driven primarily by relevance and meeting investor expectations.
 

How important is exposure to global equities for Indian investors?

Portfolio allocations and diversification are the bedrock of financial management. Within equity investing, the primary shift was seen from traditional savings, FDs, and real estate into equities. Now as portfolios tilt in favour of equities, many have started exploring opportunities outside our borders. In a global environment, where goods and services are consumed without boundaries, why should your investments be limited to Indian companies? Global tech giants in the US, innovative manufacturers across western Europe, and even Chinese companies have caught the fancy of Indian investors and this has been a big draw for overseas investors simply because such opportunities do not exist in India.