Jinesh Gopani hands out 5 mantras of stock picking

“We are high conviction investors who seek to identify businesses with strong and sustainable businesses,” says Jinesh Gopani, Head – Equity, Axis Mutual Fund.

In an interview with ETMarkets, Gopani, said: “we believe earnings will continue to set the direction for the markets. The latest earnings disclosures by companies point to a healthy outlook for the markets in contrast to consensus analyst expectations” Edited excerpts:

July is turning out to be a good month for the markets. Both Sensex and Nifty50 reclaimed crucial resistance levels. Where do you see markets for the rest of 2022?

2022 thus far has been a year of meaningful consolidation. Much of the pain has been driven by external factors. While frontline indices are down ~5% YTD (As of 27th July 2022), individual stocks are down anywhere between 10-50% and maybe more in the small-cap space.

After multiple years of strong returns, a 5% fall is a minor blip. The consolidation thus far has been stock specific, and in our view healthy for the long-term health of the markets.

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Going forward, we believe earnings will continue to set the direction for the markets. The latest earnings disclosures by companies point to a healthy outlook for the markets in contrast to consensus analyst expectations.

This gives us confidence that H2 will likely be better than H1. Markets have already digested several macroeconomic negatives.

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Rupee was hammered badly in July as it breached the 80 mark against the USD in July but remained fairly stable with respect to other currencies. Where do you see the rupee headed in the near future? Any data points which investors should track?

The INR has been one of the better-performing currencies. From an external standpoint, a stable currency is the hallmark of a well-organized economy.

The RBI has managed the currency to limit the volatility of the currency unlike in other economies. The US dollar has appreciated dramatically across most major currencies and India is no different.

In relative terms, the INR continues to maintain its strength against most trading currencies on a relative basis. The buffers built by the RBI by way for forex reserves are being utilized to ensure currency markets are

and liquid.

Due to various economic factors, the typical trend of the INR is to gradually depreciate by 4-5% per year. This however does not happen in a straight line.

The depreciation of the INR witnessed over the last year is normalization and we should be cognizant of this fact.

Shareholding data seems to suggest that FIIs might be selling but raising stakes in some of the midcap companies. Although the broader market underperformed benchmark indices in the recent past, do you think it is time to increase weight in small & midcaps?

Smallcaps are more a structural stock-specific story. You always see in times of crisis; that new investment opportunities emerge due to pessimism.

Here I do not believe in following consensus views, because of the first mover advantage. We are constantly on the lookout for opportunities from a 3-5-year view and as and when opportunities present themselves, we participate meaningfully in those growth stores.

For the uninitiated investor, small/midcap investing is highly treacherous without adequate time and resources dedicated to analysing investable opportunities and would advise investors against doing so.

What is your take on June quarter earnings which have come so far? Do you see earnings taking a hit in rest of FY23?

While it is too early to tell, earnings so far have been reasonably good. Management commentary across the board has highlighted inflation as a key risk to projections.

At this time, it remains unclear of the total impact of inflation on corporate earnings. However, investors have been lowering expectations giving managements sufficient headroom to outperform analyst expectations.

We are looking at companies that have the ability to pass on costs seamlessly and grab incremental market shares in their respective sectors. We believe, these are the types of companies that are likely to benefit disproportionately as and when normalcy returns.

As long-term investors, we are comfortable with companies taking their time in building levers for the next phase of growth and will continue to support portfolio companies in their respective growth agendas.

We are getting some Rs15,000 cr every month in SIPs. This is an encouraging sign which also signifies that retail investors are now more confident and informed. Retail investors have replaced FIIs to become the backbone of D-St. How do you see this pan out in near future?

I would like to reference an article I read in the news on this fact. The article reads that FPI exposure has fallen to 19.5% of NSE 500 companies while domestic mutual funds own ~8%.

While it is true that persistent retail SIP flows bode well for the Indian equity markets from a stability standpoint, I would not go so far as saying, retail is the new backbone.

We continue to remain price takers as a category of investors and will do so for the foreseeable future. We are just about getting started in the journey of wealth creation for most Indians.

The first step of initiation and education about equity markets is a job well done. The next step is to build sustainable long-term wealth.

As mutual funds, our job is to channelize investor wealth into avenues where we believe long-term growth will build meaningful wealth over a reasonable time frame.

Amid the current market situation, which pockets are you betting on? Which would you avoid and why?

Domestic demand continues to remain strong. High-frequency indicators like auto sales and GST numbers point to robust growth both in volumes as well as in net revenue.

We favour the domestic demand story and given that many of these sectors are now attractively valued given their growth prospects we hold them across portfolios.

Our allocations in consumer names have specifically been to companies that have the ability to pass on price hikes given the current inflation landscape.

In finance, the improving asset quality in select names, has resulted in strong operational results thus far. The sector has historically been an FPI investor favourite hence the large country selling has had a disproportionately impacted the sector.

The underlying fundamentals of the banking sector remain strong and hence we have added some names in this space.

Our portfolio allocations to the banking space have a tilt in favour of larger banks as we believe these banks are better positioned in the marketplace post covid.

Finally, we retain our conviction play on digital trends currently playing out across the economic landscape. Many of these companies also double up as non-cyclical export stories.

Our allocations in select IT companies are purely stock specific strategies and in stories where we believe are likely disproportionate beneficiaries over the medium term. To reiterate, our strategy remains stock specific and sector agnostic.

Finally, what is your mantra of picking winners for your portfolio? Is there any specific parameters you see before making buying or a selling decision?

The Axis MF investment philosophy is a fundamental-based, research-oriented approach to investing.

a)By nature, we are high conviction investors who seek to identify businesses with strong and sustainable businesses.

b)Our emphasis on portfolio construction revolves around the thesis that stock selection is the key to wealth creation.

c)The fundamental nature of our research looks to identify a pool of companies whose primary attribute is financial robustness.

d)This coupled with the capability of the management to stress the business assets and exploit opportunities provides us a portfolio of companies with strong financial metrics and a sustainable long term growth trajectory.

e)Our domestic portfolio companies, today, encompass a cross-section of growth ideas ideally suited to benefit from gaps left by weaker incumbents and capture opportunities. The core portion of our portfolio consists of companies that emphasize quality which we continue to hold on to.

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)

William Murphy

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