Axis Equity: Adapts to market cycles skilfully

Investors who have a bit of an appetite for risk and are looking for stable returns could consider Axis Equity. Launched in January 2010, the fund has a limited six-year track record. But in this period, it has proved to be a dependable performer. On a one-year rolling return basis, it has outdone the Nifty 50, its benchmark, 97 per cent of the time in each of the last five years. It has also beaten the Nifty 50 returns by 3-5 percentage points over one-, three- and five-year periods.

Although benchmarked to the market bellwether, Axis Equity isn’t the kind that invests only in large-cap stocks (market capitalisation of ₹10,000 crore and above). It is rather a large-cap oriented fund, which takes 10-15 per cent exposure to mid-cap stocks to peg up returns.

Axis Equity has so far been able to judge market direction and quickly adapt itself to the changing situation. Thus, while it handled the volatility of early 2013 by holding only around 85-90 per cent in equities, it deftly increased exposures to ride on the rally that began in September 2013. By mid-2014, equity holdings went up to 98 per cent. The fund was also able to latch on to the gains in mid-cap stocks in this period, by upping its holdings in this space to around 20 per cent. Similarly, sensing the wave favouring cyclical stocks, the fund moved up its holdings in auto/auto ancillaries from 2014 onwards.

But the fund does not stretch its luck too far. The market volatility as the year 2015 progressed saw it back to taking refuge in more stable large-cap stocks. As valuations inched up in cyclicals and bad loans of banks zoomed, the fund began cutting back holdings in these segments in late 2015.

Banks and software usually remain the top preferred sectors, followed by cyclicals, such as auto or defensives such as pharma and consumer non-durables, depending on market conditions.

Sensing that the worst may soon be over for banks, the fund upped its stakes in this space in March 2016 to around 24 per cent. Earlier, it had come down to 21 per cent by February 2016 from around 30 per cent two years ago. But the fund has done well now to favour relatively better placed private sector banks such as HDFC Bank and Kotak Mahindra Bank. IndusInd Bank too has found a place in the portfolio since February this year. Given the likely trickle-down benefits of depreciation of the rupee, it has increased its stake in software from about 10-11 per cent since October 2015 to 14 per cent in the last two months. Tech Mahindra was added in March 2016. Auto holdings have been brought down a bit in the last few months due to high valuations in this space. Some of the mid-caps in the latest portfolio include Torrent Power, Mahindra Holidays and Gujarat State Petronet.