"I do not believe that it is 'growth' versus 'value'"

While most of the equity funds in Axis Mutual Fund's stable have hit a rough patch for quite some time now, the Axis Small Cap Fund stands out as an exception. We speak with Anupam Tiwari, Equity Fund Manager, Axis Mutual Fund, who has been leading this fund for over six years. In this interview, we discuss his approach to small cap investing, portfolio strategy and some of the changes that he seems to be bringing in. He also offers insights on the new age business, value vs growth investing, and more. Axis Mutual Fund is known for 'quality' orientation when it comes to stock selection. What parameters in a stock tick your boxes for 'quality'? If we had to describe 'quality' in a simple sentence, it would be to inherently focus on buying businesses run by a strong management pedigree. Specifically, for small caps, while looking at any stock idea, we aim to start from a risk perspective rather than return. In small caps, assessing risk is more important because if you happen to buy a good business with competent management, at a reasonable valuation, the outcome would be positive. In such a situation, one needs to focus on all the possibilities that could go wrong, instead. Since small caps tend to be illiquid in nature, selling a position (in case of going wrong) is quite difficult and it is a permanent capital loss for investors; which is why we want to be even more careful. At Axis AMC, we have identified four key risks. These are promoter risk, business risk, business cycle risk, and valuation, in the priority order. Let's divulge in a bit more detail here. One of the first things we aim to evaluate is the management pedigree. There are two dimensions to it, namely integrity and competence. They are assessed on their ability to scale businesses and their governance track record. We have zero tolerance to this risk. The second risk that we carefully consider is business risk. Typically, good businesses have potential to generate medium to long term good ROCE (Return on Capital Employed), ROE (Return on Equity) and cash flows. Smaller companies need to keep on investing for growth so one has to calibrate the assessment of cashflows and return ratios accordingly. Again we have zero tolerance for this risk. Thirdly, we consider business cycle risk. The business cycle has its own role to play in a market and at times, certain companies may go through unfavourable cycles. With our research capability and depth in th

This article was originally published on February 23, 2023.