Axis Midcap Fund: Focusing On Growth Through Quality Picks
Dec 19, 2019

Author: Divya Grover

Axis Midcap Fund: Focusing On Growth Through Quality Picks
(Image source: photo created by snowing - www.freepik.com )

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.
 

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 1: Growth of Rs 10,000 if invested in Axis Midcap Fund 5 years ago
 
Data as on December 18, 2019
(Source: ACE MF)
 
Graph 2: Axis Midcap Fund's year-on-year performance
 
Graph 2: Axis MidcapFund's year-on-year performance
 
*YTD as on December 18, 2019
(Source: ACE MF)

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

Graph 3: Portfolio allocation and market capitalisation trend in Axis Midcap Fund
 
Holding (in %) as on November 30, 2019
(Source: ACE MF)

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

Graph 4: Top portfolio holdings in Axis Midcap Fund Graph 4: Top portfolio holdings in Axis Midcap Fund
Holding (in %) as on November 30, 2019
(Source: ACE MF)

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!

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. Rahul Goel;

  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 analyst 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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Subject Company means Mutual Fund Schemes

Quantum Information Services Private Limited CIN: U65990MH1989PTC054667 Regd. Office: 103, Regent Chambers, 1st Floor, Nariman Point, Mumbai - 400 021 Corp. Office: 16 Jolly Maker Chambers II, 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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