Intermittent bouts of volatility not necessarily a bad sign: Axis AMC CIO

Ashish Gupta, chief investment officer, Axis AMC.
Ashish Gupta, chief investment officer, Axis AMC.


  • Ashish Gupta, chief investment officer, Axis AMC, noted that investors appear to be favouring equities, aiming to allocate a greater portion of their assets in that direction.

Intermittent bouts of stock market volatility can be expected until the electoral outcomes, but this is not necessarily a bad sign, says Ashish Gupta, chief investment officer, Axis AMC, which manages around 2.6 trillion in assets. In fact, he believes periodic corrections are healthy as they eliminate excesses, and create fresh investment opportunities. Moreover, Gupta noted that investors seem to favor equities, aiming to allocate a greater portion of their portfolios to stocks. Edited excerpts:

What is the overall investor sentiment? Are they mostly staying cautious, waiting to enter the stock market with more optimism after the elections?

Market flows seem to be stabilizing, thanks in part to regulatory measures from both the Reserve Bank of India (RBI) and Securities and Exchange Board of India (Sebi) to prevent market excesses. While it's tempting for markets to surge daily, such rapid gains are unsustainable in the long term.

Over the last two years, investors have maintained a consistent approach on the equity side. Most of the investment flows we receive are through systematic investment plans (SIPs). Rather than making lump sum investments before events or timing the market, people are opting for systematic asset allocation to equities, avoiding making decisions based solely on market levels. It seems they're leaning towards equities, aiming for a larger portion of their asset allocation to shift in that direction.

How do you perceive the election's impact on sectors currently experiencing growth, such as manufacturing and related industries?

Elections in India are keenly anticipated by the markets, however, the primary interest lies in policy continuity and the set of reforms brought in by the government. In the lead up to the elections, it is common to see a softness in government spending or decision making at a policy level. However, this slowdown is typically short lived due to the enforcement of the code of conduct, and the impact is temporary. The real focus is on post-election policy continuity and any government initiatives, like the often-discussed first hundred-day plan.

I do not believe that manufacturing sector’s outlook will change drastically based solely on the electoral outcome. The manufacturing and industrial story is quite structural and we have taken steps to start building local value chain in many products, which if we look at other countries – have built over time. We believe that this is a long-term trend, and the momentum will only build up with time as other companies see execution and benefits of making in India.

It seems the market has already accounted for the impact of elections, expecting policy continuity. So, what factors should we pay attention to after the elections? 

One can see intermittent bouts of volatility during the period till the electoral outcomes. However, this is not necessarily a bad sign. Markets need to consolidate, in fact occasional corrections are healthy as they clear out the froth and provide investment opportunities.

Could you name a few sectors that could be a part of longer cycles?

There's a need for increased investment in power – both in terms of decarbonizing the economy as well as to cater to incremental demand. This is true globally as well, with the grids ageing in many developed economies. With more power coming in, there's a crucial need to invest in transmission infrastructure. This sets off a virtuous cycle, involving various entities manufacturing equipment like transformers and capacitors. This is the structural story.

Sectors like cement and pharmaceuticals have been seeing ongoing capacity expansion. The automotive industry is undergoing capex not just for capacity expansion but also to transition to electric vehicles. Auto component companies are gaining market share with global OEMs as they seek new supply chains for their EV manufacturing ambitions.

There is also a noticeable trend in the defence sector towards increased indigenization, benefiting domestic companies. Construction firms are seeing steady growth due to infrastructure developments and a healthy real estate cycle. These aren't temporary flashes but are structural drivers, and we are at the early stages of a multi-year cycle.

Do you see any dark horses?

The market has been quickly absorbing positive news, leaving few hidden gems. The real confidence, however, stems from gauging the longevity of the business cycle. The question is whether firms can maintain their profitability and expansion over the coming two to five years—this is where we can find some level of certainty. Our focus extends beyond short-term growth; sustainability is key. While some companies are thriving now, increased capital and competition in their segments could impact their prospects in the next 18 to 24 months. Banking and finance sector has underperformed recently due to heightened perception regulatory risks. However, we believe these proactive regulations will ensure longevity of the credit cycle and aid financialization.

Therefore, it’s essential to assess whether a company possesses a lasting competitive edge against potential new competitors. This includes exclusive products, innovative technology, efficient processes, or special market access. Without these, a company may currently prosper and yield profits, but it faces potential challenges when new competitors emerge. With rapid capacity increases in industries such as cement, there’s a cautious stance towards smaller entities. Another dimension to consider is as the large get larger, how do new companies adapt and grow in this environment.

How will the development of Gift City contribute to the Indian capital markets and asset management companies (AMCs) in terms of attracting inflows?

It's still early days, so the inflows into the Indian capital market and AMCs from offshore capital were previously routed through various offshore booking centers like Singapore and Mauritius. Now, with the establishment of Gift City, we have a local jurisdiction. We are considering setting up feeder funds for non-resident offshore investors to invest in our funds through this platform. However, it is too soon to predict appetite growth. In the short term, we don't expect immediate changes as other centers are already available for investment. With Gift City's development, there may be some substitution from other centers, but over time, as we introduce new products and innovations, we anticipate gradual growth. Overall, we feel this will show results over a longer period and help bring more flows to India.

What outcomes are you anticipating from this? Will it result in a higher number of clients or an increase in inflows?

We are venturing into new terrain and have not established specific targets. Our AMC has a partnership with Schroders, and we're in discussions with their teams regarding how these funds can be utilized by their clients to gain exposure to India through our funds.

While we are in the process of establishing a fund, the selection of products to be included is still under consideration. These feeder funds could be connected to various products, like large-cap funds or multicap strategies, among others. Initially, they may be linked to funds such as our Axis Multicap Fund. Our investment approach will mirror the strategies of our current funds, which have a strong track record spanning 10 to 12 years.

Also read | Stocks wilt as Street vigil on polls raises fear factor


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