In a stock market where nerves have been rattled by a slowing economy and a crisis in the lending sector, Axis Asset Management Co. believes it is worth paying more for shares of high-quality companies.
“What is doing well and has the potential to keep doing well will be reflected in stock prices,” said Chandresh Nigam, chief executive officer of the fund house, which manages one trillion rupees ($14 billion) of assets. “It is a winner-takes-all market.”
The strategy has paid off for Axis. Its largest fund, Axis Long Term Equity Fund, has delivered an annual return of over 12 per cent over the past five years, beating 96 per cent of peers. Its Axis Focused 25 Fund has returned 21 per cent in the past year, outperforming 98 per cent of its competition.
The preference for quality has been a feature of India’s $2.1 trillion stock market for more than a year as investors seek the safety of the strongest balance sheets. While the S&P BSE Sensex has risen 13 per cent this year to a series of record highs, the rally has been led by a handful of heavyweights. The broader market has trailed, with gauges of small and medium-sized companies in the red.
Quality can be expensive. The Sensex is trading at 19.5 times estimated forward earnings, above its five-year mean of 17.1 times.
India’s economy probably grew 4.6 per cent last quarter, which would be the slowest since the first three months of 2013, according to the median estimate in a Bloomberg survey before the data is released Friday. While efforts have been made to alleviate the bad loan crisis, consumption remains sluggish.
Nigam expects a recovery next fiscal year, “but a slower one”. For now he’s content to spend more on good stocks.
“Great businesses are edging out everybody else,” he said. “They are getting much higher multiples.”