Interview with Ashish Naik, Equity Fund Manager of Axis Mutual Fund | Value Research Ashish Naik, Equity Fund Manager, Axis Mutual Fund, tells us about his stock-picking criteria, the importance of investing tactically and Axis Special Situations Fund
Interview

"Disruptive-growth companies are at the higher spectrum of growth"

Ashish Naik, Equity Fund Manager, Axis Mutual Fund, tells us about his stock-picking criteria, the importance of investing tactically and Axis Special Situations Fund

Technology-led disruption is affecting many sectors and dealing with it has become a major challenge for investors. Axis Special Situations Fund is a thematic scheme that seeks to tap the power of disruptive growth. We speak with its fund manager, Ashish Naik of Axis Mutual Fund, to understand how he manages this fund, which sectors are more vulnerable to disruption and which are more resilient, and which themes investors can bet on, among other things.

Can you tell us about your Special Situations Fund?
Disruptive change is accelerating as technological power grows exponentially, while costs fall. This has driven innovation and adoption rates, enabling companies to appear from nowhere to become giants seemingly overnight. If we take a look at the S&P 500, which is an index of the 500 largest US companies, for example, the average tenure of a company in the index back in 1964 was 33 years. Fast forward to 2016, the figure was 24 years and by 2027, it's predicted to be just 12 years.

This combination of innovation and speed has led to a rich and fast-growing universe of transformational companies that represent compelling investment opportunities. Over the last decade, a similar trend has been witnessed in India as well. To capture this trend of long-term sustainable growth led by innovation in India and globally, Axis Special Situations Fund (an open-end equity scheme following the special-situations theme) has disruption as the core theme.

To summarise, Axis Special Situations Fund is an open-end thematic fund which will look to target the power of disruptive growth. With Schroders' 90+ analysts and investment specialists internationally, we believe your investment can benefit from a globally collaborative investment approach that brings together the best of India with those in the global ecosphere.

How do you pick stocks for your fund?
We categorise companies that fall under the disruption theme into four buckets: Disruptors, Enablers, Adapters and Deniers.

Disruptors are frontline companies whose products and services are at the forefront of the disruption in the sector/industry. These would typically be the smallest portion of companies with the highest alpha-generation potential.

Enablers are those second in line to Disruptors. They make the innovation possible through R&D and technical know-how. These companies are seldom in the limelight and are relatively unknown. When the markets identify these companies, there is significant re-rating as the true potential is calibrated.

Adapters are incumbent innovators that stay relevant by reorganising or reshaping the way they do business to stay ahead of the disruption in the market place. Such companies constantly innovate to stay ahead of the curve over sustained periods of time and grow market share or are market leaders themselves.

Finally, Deniers are the incumbents who get disrupted. These are the companies we look to avoid.

And, while we do find Disruptors within the listed space across various sectors, both in India and globally, these companies get the most attention from the market and higher investor interest might result in value capture happening much ahead of fundamentals. Hence, it might be prudent that instead of looking at just Disruptors, we have a healthy mix of Enablers and Adapters to get a well-rounded portfolio.

When do you sell a stock?
The idea is to buy these disruption-theme-based stocks early when they are either investing in disruptive growth and/or have started to demonstrate successful execution in such a business model and exit when the visibility of highly disruptive growth in future wanes.

How important is it to invest tactically as against seeking secular-growth opportunities? What allocation should an investor have for such an investing style?
Axis Mutual Fund's core investment philosophy is to invest in quality secular-growth companies and this continues in the Special Situations Fund. In fact, disruptive-growth companies are at the higher spectrum of growth and we do not compromise on quality parameters of promoter, management or business. But because we try to enter these businesses early in the investment phase, near-term profits, as well as cash flows, might be lower; but as long as long-term business model merits sustainable cash flows and profitability, we would be fine investing.

Also, while disruption is the long-term secular-growth opportunity that this fund primarily focuses on, over the medium term, sectoral dynamics shifts that may result in tailwind opportunities for some companies are tactically targeted. At the same time, short-term, event-based elements like mergers and acquisitions or business restructuring can drive a stock re-rating, which might get some opportunistic allocation.

There is more to the interview. You can read it here.

This interview was conducted in February 2022.

Other interviews:

Interview with Raamdeo Agrawal from Motilal Oswal

Interview with Daylynn Pinto from IDFC AMC

Interview with Satish Ramanathan from JM Financial Asset Management Ltd


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