$8 bn fund manager Axis Mutual Fund adds battered auto stocks to portfolio

Axis Mutual Fund is looking at one of India’s most beaten-down sectors -- the auto industry -- to help keep it in the top ranks of the nation’s asset managers.

The investor is slowly increasing exposure to select companies as it sees “some signs” of demand revival with a better-than-expected monsoon and lower corporate tax rates supporting sentiment.

“We are adding auto to our portfolio,” Jinesh Gopani, head of equity for Axis Asset Management Co., overseeing about 570 billion rupees ($8 billion) of assets, said in an interview on Friday. “In another two years, the sector could come back.”

The S&P BSE Auto Index has declined 14 per cent so far this year. That’s the second-worst performance among 19 sector sub-indexes compiled by BSE Ltd. Passenger car sales plunged 33 per cent in September from a year earlier, down for an 11th consecutive month, industry data showed earlier this month.

Axis prides itself on investing for the longer term, and its biggest fund, Axis Long Term Equity Fund, offered a return of 20 per cent over the past year, beating 92 percentile of its peers. Over five years, the returns are 14 per cent, higher than 96 percentile.

The fund, with assets of 204 billion rupees under management, added shares in the nation’s largest car manufacturer Maruti Suzuki India Ltd., Eicher Motors Ltd. and auto component maker Motherson Sumi Systems Ltd., data compiled by Bloomberg show.

“The idea is to pick leaders in large, mid and small caps from each sector and just be with them over their business cycle,” Gopani said. “We don’t want to be a rock star in one year and a pop star in another.”

Excerpts from the interview:

• Sectors like financials, auto and consumption are classic GDP multiplier stories
• “If private capex picks up in next 12-18 months, capital goods sector will provide opportunities for earnings growth”
• “We are seeing too much flux in mid, small cap sectors. With system clean up on, it is not wise to diversify beyond a point as one doesn’t know who gets hit where”
• Holding on to sector leaders has helped performance; these companies have performed despite the slowdown in economic growth
• More bullish now than six months back; expect demand to start picking up from December as economic growth is near bottom