"These new age businesses will be a reality": Anupam Tiwari, Axis Small Cap Fund manager

Axis Mutual Fund's equity funds have faced challenges in recent times, but one fund has stood out from the pack: the Axis Small Cap Fund.

We sat with Anupam Tiwari, Equity Fund Manager at Axis Mutual Fund, who has led this fund for over six years, to get valuable insights into his small-cap investing approach and portfolio strategy. The discussion also delves into a range of topics including value vs growth investing, new-age businesses, and more.

Here is an excerpt from the interview.

Based on historical trends, we see that Axis Small Cap Fund does not rise as much as its peers during bullish market phases, but it protects the downside better when markets take a flip. Do you consciously strive for it? How do you manage the portfolio to maintain this style?
Yes, it's a very deliberate strategy because losing money in small caps is very easy and generally it results in permanent capital loss. We put extra effort to make sure that one of the foremost parameters we evaluate in a stock is the probability of losing money. When it comes to small cap investing, the potential to make money over time, if one is invested in the companies with good business, is high. The real problem in small caps is to worry about risk because when they fall, the fall is pretty steep as well.

Therefore, my first objective in small cap is to protect loss of capital. If we are able to do that over a period of time, the delivered return will be reasonable. Short term gains and falls tend to have minimal impact on the portfolio. So, it's a very deliberate strategy to keep the beta low. We aim to deliver higher returns than the benchmark index but with a lower standard deviation.

What's your view on the new-age companies that got listed in the last two years? Most of them are severely battered (50-60 per cent down) as compared to their listing price. You have some of these names in your portfolio.
These new age businesses are going to be a reality as technology is penetrating our life in a very unprecedented way. Today, we have a segment of earners who were born with the internet and mobile. So, for them, consuming products and services in this mode is much more preferable and comfortable than the traditional way. Availability of capital for these businesses is also very high.

So, these companies have great potential. Now, the size of the opportunity doesn't guarantee success of every business. Great large opportunities have a problem; they bring in lot of competition. We need to wait and watch and see which companies have a focused business model and better strategy, and have the ability to deliver long term returns. We need to evaluate sustainability of profits and earnings and take a calculated bet on those companies.

In the small-cap space, how do you strike a balance between managing rising AUM in the fund and looking for investment worthy ideas and building positions in them? What's your take on the impact of growing asset size on the fund's performance and liquidity?
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