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Axis Midcap Fund: Focusing On Growth Through Quality Picks
Dec 23, 2019

Mid cap stocks are showing signs of recovery after being volatile for the last two years due to the prolonged slowdown in the economy. Many midcap stocks had corrected sharply from the peak achieved in mid-2018 as smaller sized companies have lower capability of handling economic downturn. The valuation in mid cap space as a result of crash has reached a low point which provides comfort that it may bounce back again.

Having said that, even though mid-caps have potential to deliver extra-ordinary returns not all beaten down stocks are capable of rising in future. This makes stock selection a crucial aspect in mid cap segment.

Axis Midcap Fund is a midcap fund that focuses on emerging sector/businesses that have the potential to deliver high growth.

Launched in February 2011, has track record of over 8 years with an asset size of Rs 3,859 crore. The fund is managed by Mr Shreyash Devalkar (since November 2016) who has over 18 years of experience in financial markets.

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Can you guess which is this company?

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------------------------------

Graph 1: Growth of Rs 10,000 if invested in Axis Midcap Fund 5 years ago

Axis Midcap Fund has shown a turnaround in performance recently which improved its overall returns. If you had invested Rs 10,000 in Axis Midcap Fund five years back on December 18, 2014 it would have grown to Rs 17,589 now (as calculated on December 18, 2019). This translates into a compounded annualised growth rate of 12%. In comparison a simultaneous investment of Rs 10,000 invested in its benchmark S&P BSE Midcap - TRI would now be worth Rs 15,691 (a CAGR of 9.4%). Over the last five years, the fund initially disappointed investors with its dismal performance as compared to the benchmark, though it has managed to make a comeback.

Graph 2: Axis Midcap Fund's year-on-year performance

Launched in February 2011, Axis Midcap Fund has a track record of over 8 years to its credit. The year-on-year performance comparison of Axis Midcap Fund with respect to its benchmark S&P BSE Midcap -TRI shows that the fund outpaced the benchmark in 5 out of last 8 calendar years. The fund outpaced the benchmark with remarkable margin from CY 2011 to CY 2014. Post that, the fund went through a rough patch, lagging the benchmark significantly between CY 2015 and CY 2017. However, the fund has managed a turnaround since CY 2018, outperforming the index by over 15 percentage points, and has continued delivering superior returns in the current year as well.

Table: Axis Midcap Fund's performance vis-a-vis category peers

Scheme Name Corpus (Cr.) 1 Year (%) 2 Year (%) 3 Year (%) 5 Year (%) Std Dev Sharpe
Axis Midcap Fund 3,859 6.59 13.25 14.92 16.44 13.04 0.23
L&T Midcap Fund 5,928 -6.98 2.24 12.85 17.93 15.51 0.08
Invesco India Midcap Fund 645 -0.14 7.08 12.58 16.69 15.26 0.11
Sahara Midcap Fund 8 -2.16 1.71 12.44 13.98 15.94 0.06
Kotak Emerging Equity Fund 5,670 -1.56 3.85 11.89 18.71 15.17 0.09
DSP Midcap Fund 6,771 -1.24 3.59 11.85 16.66 14.98 0.08
Taurus Discovery (Midcap) Fund 50 -5.90 3.64 11.13 14.57 15.79 0.07
Nippon India Growth Fund 6,818 -0.80 4.27 11.11 13.35 14.90 0.08
Tata Mid Cap Growth Fund 768 1.57 4.59 10.90 15.84 16.73 0.09
ICICI Pru Midcap Fund 1,884 -4.58 3.00 10.76 14.65 14.74 0.05
HDFC Mid-Cap Opportunities Fund 22,792 -5.42 2.33 10.72 15.75 15.37 0.03
Franklin India Prima Fund 7,604 -1.80 4.05 10.69 16.61 13.60 0.07
Edelweiss Mid Cap Fund 938 -6.22 3.97 10.54 16.39 16.04 0.08
BNP Paribas Mid Cap Fund 756 -4.19 0.55 8.22 14.50 15.91 0.05
Sundaram Mid Cap Fund 5,892 -8.19 -0.93 8.07 15.01 15.61 -0.01
Baroda Mid-cap Fund 46 -7.36 1.20 7.94 3.52 15.39 0.00
Aditya Birla SL Midcap Fund 2,368 -8.90 -1.44 7.47 13.99 15.98 -0.02
Motilal Oswal Midcap 30 Fund 1,768 -1.50 1.21 7.07 14.65 16.27 0.03
UTI Mid Cap Fund 3,711 -8.48 -0.09 6.53 13.65 16.06 0.00
Quant Mid Cap Fund 11 -3.82 4.60 6.52 8.39 13.33 0.04
S&P BSE Mid-Cap - TRI -7.97 0.54 8.96 13.32 16.84 0.03
Returns are on a rolling basis and in %, calculated using Direct Plan - Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on December 18, 2019
(Source: ACE MF)

*Please note, this table only represents the best performing funds based solely on past returns and is NOT a recommendation. Mutual Fund investments are subject to market risks. Read all scheme related documents carefully. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative purposes.

Axis Midcap Fund stands as a clear winner across rolling period, outperforming the benchmark and category average with a noticeable margin, though the margin of outperformance was lower on 5-year rolling return basis. In the last 1-year rolling period the fund generated high single-digit growth when the benchmark and most category peers delivered negative years.

The fund is a category topper across rolling period. Among the other top performers are funds like L&T Midcap Fund, Invesco India Midcap Fund, Kotak Emerging Equity Fund and DSP Midcap Fund.

The fund has impressed in terms of risk-return profile as well. Its volatility has been lower than the benchmark and category average though its risk-adjusted returns are superior.

Investment strategy of Axis Midcap Fund

Categorised as midcap fund, Axis Midcap Fund is mandated to invest at least 65% of its assets in equity and equity related instruments of mid cap companies. The fund focuses on creating an actively managed diversified portfolio focused on emerging sectors/businesses that have potential to deliver high growth.

While selecting mid cap stocks the fund looks for innovative & entrepreneurial companies with experienced management, market leaders in emerging industries or higher growth companies in established businesses. It employs a `Fair value' based research process to analyse the appreciation potential of each stock in its universe. The portfolio is built utilising a bottom-up stock selection process.

Since the fund invests in emerging companies, it adopts holistic risk management strategy to manage quality, price, liquidity, volatility and event related risks. The fund has the flexibility to invest 35% of its assets in non-midcap companies as well as debt and money market instruments.

Graph 3: Portfolio allocation and market capitalisation trend in Axis Midcap Fund

AMF invests predominantly in mid cap stocks. The fund's allocation in the segment averaged 65% in the last one year. The fund combines the growth potential of midcaps with the stability of large caps where it allocates 10-25% of its assets. In the last one year, the fund initially had allocation of up to 3% in small caps. However, in the last few months its allocation in the small cap segment has been nil. The fund does not hesitate from taking high cash calls if necessary. Its cash holding has been in the range of 10-15%.


Graph 4: Top portfolio holdings in Axis Midcap Fund

AMF held a diversified portfolio of 42 stocks as on November 30, 2019. The top 10 stocks constitute around 40% of the portfolio with investments across sectors. Info Edge (India) has the highest allocation among stocks of 5.2%, closely followed by City Union Bank at 4.8%, Avenue Supermarts at 4.4% and 4.2% each in Voltas, Astral Poly Technik and Bajaj Finance. Rest of the stocks in the top 10 holding have allocation in the range of 3-3.5%.

The fund has the highest sectoral exposure to Banking and Finance with respective allocation of 12.4% and 13%. This is followed by Engineering at 9.8% and around 9% each in Infotech and Retail. Consumption, Consumer Durable, Pharma, Oil & Gas and Fertilisers are the other prominent sectors in the holding.

Top contributors

Among the stocks in the portfolio, Info Edge (India) contributed the most to the fund's gains in the last one year with a weighted return of 2.3%. Bajaj Finance, City Union Bank, Astral Poly Technik and Trent were the other major contributors to the portfolio gains. Most of these stocks are part of the fund's top holdings.

On the other hand, stocks like Mahindra & Mahindra Financial Services, Cummins India, Mphasis and Wabco India eroded some of its gains.

Suitability of Axis Midcap Fund

AMF holds a well-diversified midcap biased portfolio and has showcased healthy performance over the years with superior risk-adjusted returns, barring a couple of years in between. The fund lays emphasis on quality and liquidity of stocks which helps it tide over extreme conditions. Midcaps have the potential to create long term wealth though at a higher risk. This makes AMF suitable for aggressive investors with investment horizon of at least 5 years.

Note: This write up is for information purpose and does not constitute any kind of investment advice or a recommendation to Buy / Hold / Sell a fund. Returns mentioned herein are in no way a guarantee or promise of future returns. As an investor, you need to pick the right fund to meet your financial goals. If you are not sure about your risk appetite, do consult your investment consultant/advisor. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.

Editor's note: The last few years have not been among the best for equity mutual funds. While most funds have underperformed or are struggling to match the returns of the benchmark, there are few funds that have the potential to constantly generate alpha for its investors. And we have identified five such high alpha generating funds, in our latest report 'The Alpha Funds Report 2020'. Do not miss our latest research finding. Get your access to this exclusive report, right here!

Author: Divya Grover

This article first appeared on PersonalFN here.

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.

Disclaimer:

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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A One Stock Gift in 1990 Turns into Rs 130 Crores

In 2017, Ravi made headlines by calling a leading business news channel with a surprising announcement - his grandfather had left him 20,000 shares of only one stock.

And on the day of his call - these shares were worth Rs 130 crore.

Can you guess which is this company?

It's MRF.

Ravi's story is one of the amazing stories of becoming Crorepati from a single stock.

But the question is, how to find that one stock with crorepati potential?

To find the answer to this million-dollar question, join our 'One Stock Crorepati' MEGA summit on 30th June, where we will reveal details of what we call a potential 'crorepati' stock...

Learn more

Equitymaster requests your view! Post a comment on "Axis Midcap Fund: Focusing On Growth Through Quality Picks". Click here!

1 Responses to "Axis Midcap Fund: Focusing On Growth Through Quality Picks"

Sandeep shah

Dec 27, 2019

Pls share one stock Crorepati

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Equitymaster requests your view! Post a comment on "Axis Midcap Fund: Focusing On Growth Through Quality Picks". Click here!

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