Axis Midcap Fund: Recognising Long-term Outperformers

Jun 23, 2022

Listen to Axis Midcap Fund: Recognising Long-term Outperformers

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Mid-cap stocks remained under pressure in recent months, which led to erosion in the values of Mid-cap mutual fund schemes. Some experts are of the opinion that another 10-15% fall in mid-cap indices cannot be ruled out in the near term.

Given the current circumstances, it is vital to adopt a cautious approach while making fresh investments in Mid-cap mutual funds. Notably, despite short-term underperformance, Mid-cap mutual fund schemes have generated attractive returns over the long run, thus proving their ability as wealth creators.

Axis Midcap Fund is one such Mid-cap Fund whose focus on high-quality, growth-oriented mid-cap stocks has paid off its investors handsomely in the past.

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

Axis Midcap Fund is a growth-oriented mid-cap biased fund that focuses on investing in high-quality stocks of the mid and larger mid-sized companies that have the potential to grow cash flows over the medium to long term. Earlier, Axis Midcap Fund typically held a compact portfolio of around 35-50 stocks. However, over the last couple of years, the fund has gradually increased its holdings to around 55-65 stocks, owing to its growing asset size, that has grown by more than three times in the last two years. Axis Midcap Fund combines the growth potential of mid-caps with the stability of large caps to reduce the risk in the portfolio. During the market crash of 2020, the fund’s performance was commendable, wherein it managed to substantially limit the downside risk. However, it couldn’t participate in the ensuing recovery phase that was largely driven by momentum stocks. Nonetheless, over the past 5 years, Axis Midcap Fund has rewarded investors with a CAGR of around 15.9%, as against 11.1% CAGR delivered by its benchmark S&P BSE 150 MidCap - TRI index, thus generating a healthy alpha of about 5 percentage points in CAGR compared to the benchmark.

Graph 1
Past performance is not an indicator of future returns
Data as on June 22, 2022
(Source: ACE MF)
 

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

Scheme Name Corpus (Cr.) 1 Year 2 Year 3 Year 5 Year 7 Year Std Dev Sharpe
PGIM India Midcap Opp Fund 5,119 4.89 45.54 30.22 16.33 15.10 25.04 0.30
Quant Mid Cap Fund 511 6.96 42.49 28.40 17.98 13.96 24.79 0.28
SBI Magnum Midcap Fund 6,891 5.92 38.44 21.01 10.87 12.23 24.99 0.22
Edelweiss Mid Cap Fund 1,918 -0.04 36.40 20.14 13.23 13.57 24.72 0.21
Kotak Emerging Equity Fund 18,655 1.33 35.68 19.75 13.08 15.27 24.01 0.21
Baroda BNP Paribas Mid Cap Fund 1,116 -0.89 31.95 19.12 10.83 12.71 22.83 0.20
Motilal Oswal Midcap 30 Fund 2,624 17.35 38.77 19.10 11.42 11.73 25.06 0.19
Mahindra Manulife Mid Cap Unnati Yojana 889 -2.51 30.61 19.09 -- -- 22.57 0.21
Axis Midcap Fund 17,165 -1.92 26.13 18.90 15.91 13.87 19.64 0.22
UTI Mid Cap Fund 6,373 -0.72 32.46 18.78 10.81 11.66 23.75 0.19
S&P BSE 150 MidCap - TRI -2.77 32.46 18.42 11.12 13.23 25.51 0.19
Returns are point to point and in %, calculated using the Direct Plan-Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on June 22, 2022
(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 has significantly trailed the category average and its benchmark S&P BSE 150 MidCap - TRI Index in the last couple of years. However, its long-term track record still looks encouraging. Over the longer period of 5-years and 7-years, the fund has managed to keep a clear lead over its peers to find a place among the top quartile performers in the category. At the same time, it has recorded a decent lead over its benchmark during this period.

On the risk-return parameters, Axis Midcap Fund has encountered much lower volatility (19.64%) when compared to its category average (23.83%) and the benchmark (25.51%). Despite the recent underperformance Axis Midcap Fund has managed to fare well in terms of risk-adjusted returns. Its Sharpe ratio of 0.22 is currently among the highest in the Mid-cap Fund category and ahead of the benchmark, thus rewarding investors with superior risk-adjusted returns.

Axis Midcap Fund: Recognising Long-term Outperformers
Image source: www.freepik.com - photo created by jannoon028
 

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Investment strategy of Axis Midcap Fund

Axis Midcap Fund is mandated to invest a minimum of 65% of its assets in mid-cap stocks. It aims to select larger mid-cap companies which are flexible, innovative, and have high growth potential along with proven management and liquidity. Axis, as a fund house, is biased towards playing long-term growth stories and holds stocks with a long-term view. After the significant underperformance of Axis Midcap Fund in CY 2016, the fund management has been very careful in choosing stocks in the mid-cap space and the corrective measures it took to revive the performance of the scheme, finally paid off. The fund house strengthened the quality check and tightened the risk management process as well as the approval process. Moreover, the fund manager also restructured the portfolio of the fund to have a sharper focus. The results could be seen in the fund's long-term performance.

Following a combination of the top-down and bottom-up approach of stock picking, Axis Midcap Fund invests in a fairly diversified portfolio of 55-65 stocks, limiting exposure to single stocks within the 5% mark. Through bottom-up stock picking, the fund focuses on company fundamentals and ignores the broad macro-economic trends. Although Axis Midcap Fund follows a buy-and-hold investment strategy, it is nimble in its approach and does not hesitate to churn a small portion of its portfolio to capture attractive opportunities in the mid-cap segment.

Graph 2: Top portfolio holdings in Axis Midcap Fund

Graph 2 Graph 2
Holding in (%) as of May 31, 2022
(Source: ACE MF)
 

As of May 31, 2022, Axis Midcap Fund held a well-diversified portfolio of 65 stocks. The top-10 stocks accounted for around 30.2% of its assets, of which 3 are large-cap names. Cholamandalam Investment & Finance Co. topped the list with an exposure of around 4.7%, followed by ICICI Bank, Trent, Bajaj Finance, Avenue Supermarts, Coforge, PI Industries, Astral, Bata India, Tata Elxsi, etc. have been the other prominent holdings in the fund's portfolio.

Axis Midcap Fund has gained immensely from its holding in Tata Elxsi, Cholamandalam Investment & Finance Co., Avenue Supermarts, Mphasis, Trent, Mindtree, and The Indian Hotels Company, which proved to be extremely rewarding in the last one year.

In terms of sector holdings, Axis Midcap Fund's portfolio is skewed towards Financial Services and Infotech, with respective allocation of 15.3% and 12.5%. The other core sectors in the fund's portfolio include Engineering, Retail, Auto Ancillaries, Consumer Durables, Fertilisers, Cement, Pharma, Chemicals, Oil & Gas, Consumption, and Textiles. The top 10 sectors together accounted for around 68% of its assets.

Suitability

Given the considerable rise in its corpus over the last one-year, Axis Midcap Fund may be nearing its capacity constrain. However, its reasonable exposure to highly liquid large and larger midcap stocks provides the fund with an advantage of a quick liquidation of the portfolio in case of extreme conditions.

Axis Midcap Fund avoids taking momentum bets and focuses on high-quality growth stocks. This helps it ride the tough market conditions well. Although the fund has recorded bouts of underperformance and the returns may not have come in easily over certain market phases, it is still well equipped to reward investors over the complete market cycle.

Axis Midcap Fund is suitable for long-term investors looking for a less aggressive midcap fund focusing on quality midcap stocks with a long-term horizon of at least 5-7 years.

 

Warm Regards,
Divya Grover
Research Analyst

 

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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.

 

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DISCLOSURE AS PER SECURITIES AND EXCHANGE BOARD OF INDIA (RESEARCH ANALYSTS) REGULATIONS, 2014

About the Company including business activity

Quantum Information Services Private Limited (QIS) was incorporated on December 19, 1989.

QIS was promoted by Mr Ajit Dayal with an objective of providing value-based information/views on news related to equity markets, the economy in general, sector analysis, budget review and various personal products and investments options available to the Public. It was the first company to start equity research on an institutional level.

'PersonalFN' is a service brand of QIS and was started in the year 1999. In 1999, the Company registered the Domain name www.personalfn.com for providing information on mutual funds and personal financial planning, financial markets in general, etc. and services related to financial planning and research in various financial instruments including mutual funds, insurance and fixed income products to customers. It offers asset allocation and researched investment recommendations through its financial planning services.

Quantum Information Services Private Limited (QIS) is registered as Investment Adviser under SEBI (Investment Adviser) Regulations, 2013 and having Registration No.: INA000000680. In terms of the second proviso to Regulation 3 (1) of SEBI (Research Analysts) Regulations, 2014 the Company is not required to obtain Certificate of registration from SEBI.

Disciplinary history

There are no outstanding litigations against the Company, its subsidiaries and its Directors.

Terms and condition on which its offer research report

For the terms and condition for research report click here.

Details of associates

  1. Money Simplified Services Private Limited;

  2. PersonalFN Insurance Services India Private Limited;

  3. Equitymaster Agora Research Private Limited;

  4. Common Sense Living Private Limited;

  5. Quantum Advisors Private Limited;

  6. Quantum Asset Management Company Private Limited;

  7. HelpYourNGO.com India Private Limited;

  8. HelpYourNGO Foundation;

  9. Natural Streets for Performing Arts Foundation;

  10. Primary Real Estate Advisors Private Limited;

  11. HYNGO India Private Limited;

  12. Suresh Lulla;

  13. I V Subramaniam.

Disclosure with regard to ownership and material conflicts of interest
  1. ‘subject company’ is a scheme on which a buy/sell/hold view or target price is given/changed in this Research Report;

  2. Neither QIS, it's Associates, Research Analyst or his/her relative have any financial interest in the subject Company; except for some of the Research Analysts holding units of Axis Midcap Fund;

  3. Neither QIS, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one per cent or more securities of the subject Company, at the end of the month immediately preceding the date of publication of the research report;

  4. Neither QIS, it's Associates, Research Analyst or his/her relative has any other material conflict of interest at the time of publication of the research report except that QIS (PersonalFN) is, as per SEBI (Mutual Funds) Regulations 1996, an associate / group Company of Quantum Asset Management Company Private Limited and Trustees and Sponsor of Quantum Mutual Fund (QMF) and to that extent there may be conflict of interest while recommending any schemes of QMF. However, any such recommendation or reference made is based on the standard evaluation and selection process, which applies uniformly for all Mutual Fund Schemes. The payment of commission (upfront / annualized & trail), if any, for any Schemes by QMF to QIS (PersonalFN) is also at arm's length and as per prevailing market practices.

Disclosure with regard to receipt of Compensation
 
  1. Neither QIS nor it's Associates have received any compensation from the subject Company in the past twelve months;

  2. Neither QIS nor it's Associates have managed or co-managed public offering of securities for the subject Company;

  3. Neither QIS nor it's Associates have received any compensation for investment banking or merchant banking or brokerage services from the subject Company;

  4. Neither QIS nor it's Associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months.

  5. Neither QIS nor it's Associates have received any compensation or other benefits from the subject Company or third party in connection with the research report

General disclosure
  1. The Research Analyst has not served as an officer, director or employee of the subject Company.

  2. QIS or the Research Analyst has not been engaged in market making activity for the subject Company.

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Quantum Information Services Private Limited CIN: U65990MH1989PTC054667 Regd. & Corp. Office: 103, Regent Chambers, 1st Floor, Nariman Point, Mumbai - 400 021

Email:info@personalfn.com Website: www.personalfn.com Tel.: 022 61361200 Fax.: 022 61361222 SEBI-registered Investment Adviser. Registration No. INA000000680, SEBI (Investment Advisers) Regulation, 2013



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