Axis Mutual Fund’s Karthik Kumar: Momentum is my counterfeit bet for the next 12 months

Edited fragments from a chat:

How do you currently position your portfolios in the midst of global headwind with regard to tariff and domestic windwind of GST, tariff reductions, etc.?

The macro and policy environment in the interior and internationally seen dynamic changes during the year. Although a headwind rate has been in the news for some time and has therefore given us the time and understanding to position ourselves accordingly, GST -related developments, although positive for the economy, are fairly recent. We are still waiting for details and clarity in a few areas before we act on it. But even prior to the GST boost, we maintained an overweight in the discretionary segment of consumers via retailers, hotels, travel and tourism. We believe that the discretionary segment is well positioned to take advantage of strengthening the domestic momentum and the lower interest rates. This in combination with lower tax rates can probably offer consumption an interpretation. Furthermore, travel and hospitality have retained well despite the weather and geopolitical disturbances.

That apart, we are overweight the financial sector, in particular NBFCs. We are also overweight in the pharmaceutical segment, although we have assessed it in the light of the uncertainty with regard to rates and price problems in the US. Finally, renewable Capex, Power Transmission/Distribution Companies and Defense are the other themes in the cyclical space that we like.

SENSEX, Nifty has not been beating in the past year in the Bank FD. Do you think that the usually correction is behind us and that the growth process should soon be back?

While the market was lukewarm in the short term and especially last year, but when it was seen in the context of the overall cycle, it had been a whole journey in the last 5 years. In particular post-known lows, our markets have succeeded in beating most developing and developed markets largely in the course of the world due to a robust growth server shell for world markets. As a result, our ratings look expensive in absolute and relative sense and the growth differential is also narrowed as the higher base catches up. In this context it is obvious that the markets take a breathing break. We see possible time correction in the short term as a result of moderating economic growth, revisions of profit expectations and the current tariff uncertainty. India, however, remains a growth option in the medium to long-term, supported by the strong domestic consumption-driven economy. Good kharif-crop, proactive steps of the RBI in combination with approaching GST reforms by the government can offer the necessary interpretation that the economy and markets need.

What do your quant models tell you about sectoral opportunities that lie in front of us?

Quant models are supplied in different flavors and the shares and sector preferences would depend on the nature of the model. Ons Momentumfonds The ashmomentum fund is, for example, Bullish Telecom, Healthcare mainly led by hospitals and financial data. Although the bearish is on staples, sustainable consumers and energy. While on the other hand Axis Quant Fund that is based on a multi-factor / GARP approach, Bullish is also about industrial and in particular Power Transmission & Distribution, Defense and Airlines.

Given that the NFO of Axis Nify500 Quality 50 Index Fund is currently open, why do you think it is a good time for the quality factor to work?

The goal is not to time the style, but instead to offer investors a way to get exposure to a style of which we as a house have been a vocal supporter. Quality companies are usually market leaders who demonstrate consistent performance, financial stability and a sustainable competitive advantage. Quality is one of the essential principles of investing and our markets, apart from recent years, have rewarded quality shares fairly well. Given that markets are now acting on optimum appreciation in large, middle and small cap -space, we believe, one must focus on quality to identify bags that can maintain and improve growth and return perspectives.

FII sales has created pressure on Indian shares. We saw the Q1 win season do little to change the opinion of investors. When do you think we can again expect a broad profit growth with double digits?

We have seen a moderation in economic activity in the past quarters and that is also visible in quarterly income. However, we expect a good monsoon season, healthy reservoir levels and promising Kharif -crops to support rural consumption. This apart, proactive policy steps from RBI including interest rates and liquidity that loose in combination with GST rationalization should help recovery of growth.

How should investment investors balance their style exposure in a portfolio to earn money in various market cycles?

Investors must try to diversify their portfolio over styles. These individual styles such as quality, momentum etc. can be seen as parallel to sectors in thematic investing. Individual sectors have their own secular positive and negative cycles with somewhat increased volatility compared to diversified funds. Similarly, these individual styles will also experience their own cycle. That is why diversification would help to better navigate market cycles from a risk and return perspective

Finally, what is the only contrary idea that you would go back for the next 12 months?

I would choose Momentum to be that one contrary idea in the next 12 months. It has been a strong performer during the last period of 5 and 10 years with outperformance of mid-single figures on Nifty 500 (such as on December 31, 2024). However, it has had a reasonable drawing in the last 6 months if the underlying market factors, on which the momentum signal depends on, changed at the beginning of this year, partly because of the policy and tariff uncertainty caused by the West. As the things settle, we expect that the momentum strategy will recover better and perform better than broader markets.

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