Axis AMC CEO says wealth creation will happen from quality growth business

By: and |
Published: October 19, 2019 3:44:57 AM

The biggest arbitrage available in the market is for people who think long term. I am very clear that wealth creation over the five-year period will happen from quality growth business.

Axis AMC, CEO, wealth creation, quality growth business, growth business, Asset Management Company, slowing economyChandresh Nigam, MD & CEO, Axis Asset Management Company

As the environment gets tougher for companies, businesses that are centres of excellence within their industry would fare well, Chandresh Nigam, MD & CEO, Axis Asset Management Company (AMC), tells Chirag Madia and Yoosef KP. Wealth creation over the five-year period will happen from quality growth business, he believes. Edited Excerpts:

What is your view on slowing economy?
I feel that economy is headed for slightly tougher time. I don’t know whether it will go further down in terms of gross domestic product (GDP) growth. But it’s also naive to think that somebody can just pump money and things will start improving. It can happen for six-twelve months but not long term. India has a huge competitive and innovative issue. Just a few days ago, India slipped down 10 places to be ranked 68th in the annual global competitiveness index 2019. Now, in some companies, there is institutionalisation of innovation, but as an economy overall we are seriously lagging in innovation. So in this kind of environment it is better to focus and invest in businesses which are centres of excellence within their industry or sector. While there are announcements of corporate tax, I think if they can do some something on personal income tax it can have a long-term impact.

When will the demand pick up?
I think demand is fine across the country, barring UP and Bihar due to the recent floods. In Karnataka and south India, you will see growth of 7-8% in consumer product category. In Haryana and Punjab, some parts of Rajasthan and Madhya Pradesh, land prices and liquidity are badly effected as real estate money is stuck. Obliviously in such scenario, people will forget about buying luxury cars.

Haryana was biggest market for luxury cars, that part of the market is gone, it a was cyclical high. People say there is not demand for real estate, but in affordable housing projects 30% properties is sold within first day itself, so you have to get right products. We have an alternate investment fund dedicated to real estate, where we are seeing so many proposals, there is demand, but it’s not as high as some people would have liked it. NBFCs are not lending, but some companies are still showing 19-20% growth in advances, and some others are showing 38% increase in advance. India is 25-30 different markets.

We have seen corporate tax cuts, reforms are happening. But how should investors look while investing in this period when there is slowdown?
We are all trained to look at averages and average index earnings in the last five years were in single digits. At the same time, there are portfolios whose earnings have been growing at 20%, so if you look at them you will ask where is the slowdown. It depends on how you look at the companies. We say that even if GDP grows by say 5.5-6%, there are business which are growing at 15-20%.

On the other hand, there are stocks which are down by 30-50% but they were never part of our universe. Over the long term, we think that markets will do well because underlying business which we buy will also do well. But for various intermediate time frames, these can be at variance. So as a fund house, if you ask me whether I am stock investor or business investors? I think if someone is really interested in long term, they should be business investors.

The biggest arbitrage available in the market is for people who think long term. I am very clear that wealth creation over the five-year period will happen from quality growth business.

Which are the sectors you think will do well going forward?
If we look at overall GDP, I don’t think any sector in particular will do very well. Some companies will do phenomenally well, but I doubt on overall sectors. IT may be reasonable because of currency benefits but double-digit growth will not be seen. In terms of consumer sector, last quarter was very bad, hopefully with good rains, rural demand should start picking up in the second half of the year. I think good quality and risk-managed financials will also do well going forward.

What is the investment rationale of equity funds of Axis AMC?
We believe in buying in companies which are creating wealth. If they create wealth for themselves, they will create wealth for shareholders. We look at companies that will improve their market share, have better pricing power and good cash flows. In some cases, we also look at companies whose bottom line grows faster than top line. Some time when we focus on profits, we tend to forget on cash flows, you can show huge profits but it will not make any sense if there is no cash flow.

Are these reasons for strong performance of several of equity schemes?
In a portfolio two things work, what goes up you should have lot of it and not have much exposure in stocks that take a south-bound journey. If we say we will not allow non-quality company to come in our portfolio that itself is 70% of risk management. Just because some stocks are cheap or their value is good we will not consider them in the portfolio. It’s a fairly well thought-out process and which we have run successfully over the last decade.

Why are the cash levels so high in few of your equity schemes. Do you foresee more corrections in the market?
We don’t manage cash; we manage overall portfolio risk. In the last one-and-a-half years, we have seen continuous flows in our schemes, so we can go and buy same stuff which might sometimes have overall risk management problems for us. So, I would say high cash levels are a passive number and not an active number. No fund manager is paid to take a cash call. But we don’t get unnecessary stressed to take high cash call as our fund managers were fairly negative on economy since August last year. So if we find new companies, we are happy to invest.

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