'Quality companies have been resilient in a volatile market': Shreyas Devalkar, Axis MFAxis Bluechip Fund has registered a 21.5% return over the past year, while many of its peers like SBI Bluechip delivered just 3.88%, ICICI Focused Bluechip 6%, and HDFC Top 200 (now HDFC Top 100) 0.36%. However, one swallow does not a summer make and we have to look at the long-term performance as well. Here too, Axis Bluechip is impressive with a three-year CAGR of 11.85% and a 5-year CAGR of 16.83% beating its benchmark Nifty 50 (Total Return Index) over both time periods. RupeeIQ speaks to Shreyas Devalkar, a senior fund manager with Axis Mutual Fund, who has been at the helm of this fund since November 2016.

Axis Bluechip fund has done quite well in a year in which most mutual funds have struggled. What is your view?

Axis Bluechip fund has an investment mandate to invest a minimum of 80% in large-cap stocks as classified by AMFI. The fund approach to investing is purely bottom-up and index agnostic. In addition, the investment ideas are based on the overall Axis approach of investing in quality companies. Over the last couple of quarters, our investment philosophy has paid dividends as companies that fall under our criteria of ‘quality companies’ have remained resilient in an otherwise volatile market. Our focus on such companies and steadfast adherence to our investment process have enabled the fund in generating significant alpha over the fund benchmark (NIFTY 50).

The Indian market has seen a few select large-caps rallying while the rest of the large, mid and small cap space has been hit hard. Funds which happen to hold these names have done well and beaten the market. How long can this situation sustain?

As you have rightly pointed out, the market has seen the emergence of a select few stocks that have done well in an otherwise lacklustre market. This, in our opinion, is part of a larger trend in recognizing companies with strong fundamentals and credible management. Historically we have seen this situation persisting during the phase of a macroeconomic change.

You are a large-cap equity fund. Under SEBI rules, this means that you are limited to just the top 100 stocks for 80% of your portfolio. Will this limited universe take a toll on performance in the future?

I do not see any constraint on fund performance due to this limit per se. Actually, the definition of market cap for large-cap stocks is quite liberal and there is an opportunity to add quality companies having a relatively lesser market cap as well.

You run a fairly concentrated portfolio of just 29 stocks. Can your strong outperformance flip over to equally strong under-performance due to this?

As a fund house, we believe in managing compact portfolios based on our internal assessments of stocks and carefully manage allocations based on investment mandate. Axis Bluechip Fund has historically held an average 30-35 stocks at any given point in time. We do not believe in over-diversification. We rely heavily on our investment and research process for our stock selection.

Our current outperformance and longer-term performance track record is a testament to our process-driven approach to investing, and we believe that this would reap dividends going forward as well.

You are underweight technology compared to the Nifty 50 index in a year in which tech has delivered a huge rally. Why the pessimism?

Our exposure to IT has been focused on the industry bell weathers on the back of the improving US economic environment and stronger deal pipelines. While the sector has been gearing towards a lower growth environment, select pockets in business transformation and AI integration offer significant opportunities for these companies.

What sectors are you bullish on? Where do see the next phase of growth and returns coming from?

Rural and consumption stories continue to remain attractive with a long-term perspective. The run-up to the elections and good monsoons are likely to spur discretionary consumption which is likely to bode well for rural centric consumer companies. In this space, we are positive on auto ancillaries, and consumption stories. Another strong play for us are private retail-focused banks and NBFC. These companies, in our opinion, are on the cusp of a cyclical upswing on the back of deeper market penetration and rising consumer demand leading to strong earnings growth.

Neil Borate

Neil Borate is Deputy Editor, RupeeIQ. He can be contacted at neil@rupeeiq.com.