Axis AMC: 2019’s Top-Performing Mutual Fund On Market, Economy And Budget Impact
A piggy bank is arranged for a photograph. (Photograph: Carla Gottgens/Bloomberg)

Axis AMC: 2019’s Top-Performing Mutual Fund On Market, Economy And Budget Impact

India’s top-performing mutual fund of 2019 sees overseas investors ploughing money in both debt and equity markets this year as the economic slowdown has bottomed out and growth is picking up.

“Worries of a slowdown in the economy are getting over, and we seem to have passed the trough in economic activity,” Chandresh Nigam, managing director and chief executive officer at Axis Mutual Fund, told BloombergQuint in an interview. “Flows look to be strong, January was a good month for flows into equity funds, and we are hoping that things pick up after the last few months which have seen flows slow down considerably.”

Mutual funds started the year on a promising note with inflows into equity schemes jumping to their highest in five months. That reflects improving investor sentiment as the broader market is beginning to rebound. The change comes after uncertainties stemming from a liquidity crisis, trade war tensions and a slowing economy, among others, led to a flight to safety in 2019 when investors piled into large caps while shunning small and mid-caps.

Axis mutual fund schemes, however, defied the gloom last year. Axis Midcap Fund and Axis Smallcap Fund, according to Value Research, were the best performers last year when more than a third of all mid-cap schemes and over half of all the small-cap schemes suffered losses. Axis Bluechip Fund gave the highest returns in the large-cap category.

BlooombergQuint talked to Nigam, R Sivakumar, head of fixed income at Axis Mutual Fund; and Jinesh Gopani, head of equities, on the market outlook, the economy and the impact of the budget:

Foreign Flow Outlook

The overweight level that some global funds had on India has gone down over the last few quarters, he said. But the Union Budget 2020 is pro-global flows on both the equity and the debt side, according to Nigam. “It’s too soon to predict if the FII view has changed post-budget, but if global funds start allocating to India as an individual market, then it should augur well for the debt markets.”

RBI-Budget Push

Bond markets are happy with the budget since they were expecting a larger fiscal slippage, said Sivakumar. With the RBI following it up with a fairly dovish policy statement, announcements around long-term repo operation, the possible continuation of open-market operations and steps encouraging banks to lend should help to put a bottom to growth, since all the micro announcements from the RBI are pro-growth, he said.

“Budget and RBI policy announcements look like the policymakers are targeting sectors that have not moved thus far. And getting into the global bond market indices would be very important for flows, which will augur well for Indian markets, both equity and debt.”

Possible Growth Driver

“Volatility would be your friend going ahead, and growth would be the key driver of stock prices,” Gopani said. Rural markets picking up would drive consumption again, even though it’s difficult to time how and when would the consumption picks up, he said. “Rural is a spender’s economy, and urban is a saver's economy. And while it will be a slow gradual rise for rural income, the delta coming back will help the GDP growth rise sooner than later.”

How Axis AMC Outperformed

In the last three years, Axis’ success is due to returns for good governance, Gopani said.
The true test of any business model is during bad times, he said adding “if you are able to pass through that phase, you become a disproportionate winner.”

Now that the economy is going to rise, a lot of other companies would benefit, he said. “But investors will need to be careful in picking some of the other stocks which are not the top quality.”

Watch the full interview here...

Here are the edited excerpts from the interview...

We can start with you. This year has started off well because now we have slightly broader participation. In the month of January, yields—due to operation twist or otherwise—are also well under check and flow seems to be doing okay. How are you viewing the year thus far? And how do you expect the sentiment to be going ahead?

Chandresh: The worries of the slowdown in the economy, largely in the second quarter this financial year and extending a little bit into the third as well, I think all those are getting over in some sense. At least we certainly seem to have passed the trough in economic activity and ultimately the markets will reflect that. The markets have actually have picked that up from December onwards.

In the equity market, certainly, there has been broader participation and that’s led to a significant increase in flows as well. So generally, people got more comfortable. Things look a lot more stable. The budget has been fairly okay. I think it’s a balance of growth as well as fiscal consolidation. There may be some issues that we will have to grapple with in the budget, whether the divestment target happens or not. There may be some question marks, but otherwise, I think we are in enough space to see that the economy kind of moves up and the markets are going to benefit. That will be good for us anyway. The flows should continue and things do look to be fairly strong at this point in time.

What’s the feel on the ground? We’ve had two big events recently: the budget and the policy statement that came out Thursday. Are people happily getting back into mutual funds as a form of investing? And do you believe that momentum could continue?

Chandresh: The initial reaction on Saturday, when the budget came out, was fairly negative. Eventually, as people understood that there’s nothing really all that negative in the budget, things started to really improve. So, I think you can actually look past this whole big drop and then rise and take the trend as it was moving earlier. Earlier, it anyway was broadening up the market and significant flows were coming in. I mean, January was a very good month for the industry, especially as far as equity flows from both domestic and foreign investors are concerned. So, there’s no reason to assume that there should be a break in that trend and that should continue. Three to four days after that, flows are okay, but we don’t really know any meaningful change further. I would think that if that change happens, probably it’ll be for the better.

Okay, so a question to either of you, and there is the budget that happened, the policy that happened as well, and both of them in a manner of speaking, I think we are now getting down to deducing whether a budget and policy are good or bad by the reaction that the market gives. What did you guys make of it?

Sivakumar: So, I will take it from the macro and the rate side, maybe it’s a good lead into the equities. So, I completely agree. I mean Chandresh made the point that it’s not a negative budget, but I will go a little bit more than that. I think the government was facing several fiscal constraints. They have loosened it up a little bit by taking that half a percent deviation on the Fiscal Responsibility and Budget Management Act. So, which is fair, and the bond market was quite happy with that, really.

Does the market think it is more realistic?

Sivakumar: I think the market was probably expecting a bit more sense of his higher deficit, maybe 3.7-3.8 and it came at three-and-a-half. I’m talking about fiscal 21, which was definitely kind of more palatable, shall we say. So, that caused the market to sort of ease some other worries.

I think the RBI has followed that up with a fairly dovish monetary policy statement where they have said that now that inflation is under control, and remember that they’re projecting December quarter inflation in 2020, at about 3.2 percent. So, with inflation below 4 percent projected, they have the space to open up monetary policy. So, you will see a significant number of steps in terms of the LTR repos, the long-term repos. There will probably be the continuation of open market operations and twist more steps in terms of encouraging banks to lend. So, all of these things I think will go towards probably putting a bottom on the growth that we saw in the last one or two quarters and we expect to go to pick up over the next few quarters. As I said, inflation is not a major concern. So, this does point to, I think, much better macros over the next six to 12 months.

Just wondering, a follow up there. Since we’re on the topic of policy, was anything a really big move to your mind in the policy of India, the fact that the rates are held is but a lot of micro announcements within?

Sivakumar: Yes, all of them are pro-growth. So, in that sense, for example, telling banks that own incremental lending to some specific sectors, you get a CRR exemption. Now, that’s a pretty big move, because the banks get essentially zero percent interest on CRR. Instead, if we can lend at 8, 9 or 10 percent, that’s essentially money for jam, right? So that’s a huge reduction in the cost of funding. That’s another way of looking at it for the banking system. Similarly, restructuring or allowing some kind of commercial real estate and MSMEs, I think, reduces costs through not having to organize NPAs. So, all of these things, I think are definitely a big boost to the banking system.

I think the RBI is looking at a challenge that they have to cut rates 135 basis points, but for the critical segments of the market, which is, for example, the bank lending rates or corporate bonds other than AAA, we have not seen that movement. So, if you look at some of the statements, the governor in the press conference as well as the segments in the policy, it clearly seems that they are targeting those segments of the market which have not moved so far. So, money market rates have come down short and G-Sec rates have come down, but it looks like they’re going after a more durable edition of liquidity through these repos to try and bring down term rates.

Let’s say one year, three rates down not just a money market rate. The twist was clearly targeted at bringing on long term yields lower. So, it looks like there’s a lot of stepping outside the normal comfort zone of a central banker, which is overly focused to look at a much broader remit of monetary policy to kind of bring rates down. So, that’s why I’m saying this is a very dovish or a very pro-growth monetary policy in an environment where inflation is not a major concern for them.

That’s music to the ears, right Jinesh? For an equity watcher, growth and pro-growth measures being taken. How are you analysing all the events over the last two or three odd months and what’s your outlook for the year ahead?

Jinesh: I think from the budget, if you really see, that day, what happened was there was a lot of expectation from the market participant about long-term capital gains. I think the market corrected and again bounced back, back to basics.

As Chandresh said, come back and cut all the noise. I think you are coming back to this as earning season is going on. Wherever numbers are good, people are giving thumbs up and where numbers are bad, they don’t want to own those. So, I think, it is back to basics. Look for growth and look for fundamental stories. We’re seeing rural growth, showing signs of some recovery and if rural growth recovers in the next three to six months, then I think half of your job in terms of momentum picking up, the sentiment being positive will be taken care of.

Then, it is just the consumption picking up. I don’t know how it will pick up, how fast it will pick up, but it looks like a slow and gradual recovery, but when you’re bottoming out, then you are progressing slowly, steadily on the higher trajectory.

Any of you just feel free to come in, but just wondering an overarching belief for that day after budget, which is Monday and Tuesday, were a lot of people saying that now it’s back to coronavirus, back to what the Fed does and back to the global picture and not necessarily a domestic story. Do you reckon that until the visible signs of rural recovery happen, Indian markets on a larger basis will mirror what the global markets will?

Jinesh: So, here, volatility will be your friend. Whenever your global emerging market moves happen, that will have its own impact on the Indian market. Having said that, at some point in time, when you start showing numbers, more flows hopefully should come to Indian markets. As I said, it will take some time, but I think we are on a positive trajectory.

Chandresh: So, one of the things, if I can add is, at least for about a year or so, till about three months back, India was not really that much on the radar of international investors. If you look at it, track some of the funds the way they were all used to be overweight, say two years back and that level of overweight has kind of come off and come down. To be honest, we had not given them any reasons to be really very bullish because as you’ve seen the economic growth is kind of coming off.

I think there is a strong feeling now that the trough is in place. Yes, obviously the big question is how quickly we go back up. But at least we’ve given them a reason that the worst is over and we are going to be stable. More of the same, we go back to the 6 percent, maybe read lower 6 percent GDP- fiscal prudence is anyway in place.

So, we are giving a lot of reasons. As a budget anyway, I said it was very pro-foreign flows—both on the debt side as well as on the equity side from the dividend distribution tax perspective. So, I think things are falling into place and for the markets to do well, you have to have a stable macro. The corporate sector should start doing well with the rural economy, and then the flows. If you get all the three you have to see. So, that’s from an equity perspective. Fixed income, obviously, the government is trying to attract a lot of more international flows. If you get that, I think it’s going to be really good for the economy and to have no kind of further virtuous cycle coming into a place where ultimately leading to growth in the economy. That’s how we would hope and expect it will play out.

Do you reckon that I’m presuming that you guys would have some partnerships or some conversations with global funds as well investing through your vehicles and through your AMC too. Is it too soon to figure it out if indeed people turn to post these, but was there a sense in the run-up or that if indeed some of these things happen, that we would be happy to re-look India in a big way? Because, as you said, in the run up maybe people had kind of shied away from India.

Chandresh: It’s too early. Let’s say four or five years back, there was a belief that India will become an asset class of its own. We haven’t really gone there. Now, let’s see if in this cycle we really have the next two, three years of a good run, then maybe people will start looking at allocating to India.

We used to be a part of BRIC. If you remember, then that whole story collapsed. Then we were a part of some emerging market index and some emerging market pool of money which was getting allocated to emerging markets. China has broken out, it has become really large. Looks very solid, confident people are specifically allocating money to emerging market and also China separately. That’s not happened with India. There’s the hope that this time, once these problems are over, we get to a reasonably high momentum—both in the economy as well as inflows, and more importantly, stability in the macro economy, to look at people starting to allocate to India, from a longer-term perspective. So that would be partly expected.

Maybe those expectations are heightened on the bond side as well because
somebody was making this point today as well that both the budgets, the previous one and this one, had something for the bond markets. This time around the budget’s announcements on the bond markets and inclusion of the global indices are a lot more believable in the sovereign bond issue.

Sivakumar: I think it’s very important because we say that foreign investors and Indian bonds are flighty. But the reason why they’re flighty is that they’re all non-benchmark allocations. So, they’re not coming because we are a benchmark. Now if we get ourselves into benchmarks, we will get long term money. So, I think it’s like one of those chicken and egg situations, right? I think it’s very important that India opens up the bond markets and gets into foreign indices or global emerging market indices or otherwise. So, we get more of the long-term flows rather than just alpha allocation flows or traits. So that’s part one and it’s extremely important. How we go about this is also important in terms of are we going to take the one-step-forward, one-step-back-approach, or are we saying that, this is going to be the new method that we’re going to follow and then, if you see how China got added to most global indices, they started small and then they kept stepping up the weights.

Do you reckon that’s how India would do it?

Sivakumar: It should be. Even from a global bond index, a constructor perspective, to open up a market because India at one shot will create problems. So, I think it works both from the global perspective as with Indian regulators as well as have a step way to open up our markets. We must remember that when we discuss fiscal deficit and fiscal consolidation, the numbers can sometimes be daunting. I mean, we have 3.5 percent for the centre, we have another 3 percent for the states and then you add the public sector borrowing, we soon hit the 8-9 percent GDP mark; which is approximately equal to the household financial savings rate. If the house entire household financial savings is essentially going to fund the public sector borrowing requirement, where do we get funding for everything else?

Now, there is a little bit of corporate savings and public savings, but the reality is we do need the global pool of capital to get the next leg of growth capital both on debt and equity. So, it’s extremely important that you open up the markets for capital flows and long-term capital flows on the debt side.

Therefore, did you get a sense that maybe this budget tried to do that? We are giving that little bit to consumption, a little bit to infrastructure, and then the large infra projects, open them up to the sovereign wealth funds because that’s the money that will come in and fund these.

Sivakumar: Yeah, well, I think the first assumption is sovereign wealth funds are natural long-term investors but that’s not the only pocket of natural long-term investors. So, perhaps it’s a good initial step, or they may want to encourage this.

Chandresh: The consumption funds have also got a long term pool of monies. I agree with what Sivakumar has been saying. I mean, basically, we don’t have domestic savings to really fund the kind of aspirations we have on the growth front. So, whether it is equities, whether it is fixed income, I think what we saw in the budget and what we saw last year, as well post the budget announcement, we are in some sense trying to roll out the red carpet for all these people, global capital. Anyway, there’s a lot of liquidity still available globally. If we can really tap it meaningfully, from the form of a long-term perspective, not that it just comes in and goes out and it makes your markets even more volatile. If you can get that, I think that’ll be a big boost eventually to the economy.

Crossed fingers. I also want a sense of what corporate India seems to be telling you and compare it with what they are telling us as well and whether credit might improve. But Jinesh, the key point to all of this is that whether or not all of these measures in some way or the other can improve earnings, because eventually, markets will track earnings. No matter how much we want to decouple in the short-term, the long-term earnings will be sacrosanct. How are you seeing that picture shape?

Jinesh: Obviously, some consumption flows are picking up in rural India because of good monsoons, water levels are high, so the Kharif season also should do well. So, you have a good crop at a stretch, that should really help. I mean, this is what we understand that should really help rural picking up. If that picks up, then half of the job is done. Rural is a spenders’ economy, urban are both spenders’ and savers’ economy, urban has been flat for now- five to six years in terms of growth, but rural which used to grow at two X of urban had come down to half of the urban growth. I think if that delta comes into play, and I think your pickup in terms of GDP from 4.5-5.5-6 percent over the next 12 to 18 months should be there.

When you said that it’s a difficult time, did you expect that to happen within the first half? Or will it probably get delayed as much as the second half? Or is it difficult to say that?

Jinesh: I think it will be slow and gradual.

The other part of the question is what’s worked beautifully for you guys and kudos. Because, I mean, we did this analysis of almost all categories of funds; Axis AMC was the table topper. If not number one, then within the top three, what’s worked beautiful for you is the polarised nature of the equity markets, at least on the equity side, because you guys have probably been parked in the right stocks for 2019.

Do you expect that to change wherein the haves, it’s not just the haves will perform the have-nots could also come in and make the mark?

Jinesh: There will be a broad base in the market last three years. I would say the success of Axis AMC has been written for governance. If you are into a good company, a highly governed company relative to others, you got a disproportionate share of flows. Those companies have been able to manage their show during demonetisation, GST and the liquidity crisis, so the true test of any business model is during the bad times. So, if you are able to pass through that phase, you become a disproportionate winner. So obviously now that the economy from 4.5 going to 5.5, obviously in that sector are only three companies doing well, then maybe let’s say five, six companies will do well. But if the governance things are good, then obviously we’ll have more flows into other companies. But if the governance things are not great, then I don’t think it is like buying anything and everything in that sector. We have to be careful about it.

So, you don’t believe that the winner takes it all might necessarily be translating in 2020 as well, as some of the others could also chip in.

Jinesh: Obviously. Normally, you expect the entire sector to do well. Rather than only two companies—how much can they stretch? They need some participation in that sector. So hopefully two, three more companies in that sector should come back.

Sivakumar: I just want to make a point that Jinesh has made, that when you have nominal GDP slowdown the way we have had it. So, let’s say if nominal GDP is growing at 15 percent, then you have a fair number of companies growing greater than 15 percent. If your nominal GDP growth is at 8 percent, then the number of companies which are growing at 15 percent plus is very narrow, right? So that’s part of the reason why this has got polarised.

But they are not going at 15.

Sivakumar: They don’t have to go at 15. They can go at 10 or 12, but it will still increase the pool of companies that are still able to show double-digit plus growth rate. So that is in itself, a broad base. Even within that, you will still as Jinesh says, need those elements of governance etc. to ensure disproportionate gains. Gains will still go to better-governed companies irrespective of growth because you have more certainty in growth. Yeah. I think that’s a limited point that I wanted to make that a lot of what we’re talking about really comes down to whether we have turned the corner in terms of growth and if the outlook for growth over the next two or three years. None of us like to believe that it’s a matter or a story of quarters. No couple of quarters and I think markets will look forward to a few years. Are we seeing some kind of acceleration? It could be a slow acceleration, but are you seeing an acceleration in the markets to price for that?

I would want to talk about how would Axis AMC then do its strategising over the course of that year but just wondering, our corporate conversations also seem like that because companies that we’ve spoken to for the quarterly results or otherwise or even off-record are saying that maybe at the margin, some things could be turning but not necessarily everywhere. Cost control is the dominant theme, but what are corporates telling you? Are they confident about business and capex? That certainly is not evident thus far in the public.

Jinesh: So, I think when we are talking over investing companies or new companies, we are evaluating, it like just wait for two-three months. If things really pick-up, then I think you have crossed the hurdle. If it doesn’t make up for some reason, then I think you again back to polarisation.

Chandresh: So, I just have one thought on the previous question—you used the term winner takes all, I think that is a trend globally. Every industry has people who kind of break out whether it’s because of technology because of vision and execution, some disruption, they’re walking away—if they execute well, they’re walking away with the price. So that’s I think one direction. It’s happening at a speed but in between, if you have a period when there is significant stress, which means the industry is not doing that well, then you are to all of this life, look, see, the better ones, the good quality ones would actually gain share. The reverse which happens and everybody’s doing well, people are finding out ways to get some market share. So, you kind of lose a little bit of market share when everything is really doing in bullish and you really gain it and in some times of the times have been really tough, you may actually see some competition and organisers going out of business. That’s how you see all these great businesses over the last 10-15-20 years. They continuously keep on increasing market share, and all that. So, I think that’s going to continue. I think what Jenny is also saying is obviously if you have a better economy from the 4.5 percent, or whatever the number, the worst trough number would have been, you will see some kind of broadening of the markets, some more people will do well, but then those as long as that trend keeps up and these companies do well, maybe two, three years, that was okay. But then after two, three years, again, you will see the same change, I’m not saying the economy will turn the other way, but you have to keep that in mind. Are these companies really the winners in the segment or are they just benefiting from a short cyclical uptick?

I wonder what’s your thought on the large divestment plan that has been announced as well. Again, the thoughts out here are divided because some people say we would have hoped for instead of piecemeal measure I said just go all out and maybe even 2.1 was less but to put on is a large number and has an appetite for such a thing- whether the domestic houses as well, would be able to participate in a big way to absorb the kind of supply that comes in. Not all of it will be primary markets, I agree. But still, it’s a large number.

Chandresh: It’s a fairly large number and while we would have liked to see a lot of that happened fairly quickly, past experience shows that there will be some challenges and one of the few ones which really went reasonably without a cup was Coal India. Others have had some kind of an issue and there are lots of activities which needs to be done before we can really go out and do go public. Transparency, putting stuff all out in the domain- people are going to ask lots of questions, etc, how do you prepare for that? When you are non-public, not away from the public glare, various activities you could not justify to anybody.

I think just forget getting the numbers and the data and all that. Just prime the organization itself that they should now be open to a lot more transparency questions from you guys, from people like foreign investors. I think takes a little bit of time but it’s important. I think the government has said that we want to kind of get out of business as such and leave the business to business people.

Obviously, it’s not going to happen in a year. So, it’s a welcome step. It’s a good chance in the thought, and we will be the markets that will be very supportive of whatever the government wants to do on this front. There are some really high-quality businesses that are being talked about in terms of disinvestment. So, people will certainly take their call, how much goes through?

Only time will tell and I think the bond market will be very interested because this is high ticket and six months later, if you feel it there is some slippage then there could be some reactions there but I think on the whole it is very welcome. The objective is the government set out for itself. I think they didn’t have much of a choice either but that’s good. I think they’ve taken the step and hopefully, they will follow it up in terms of activity, whatever needs to be done. So even if let’s say you miss some of it this year, but you can do it next year, I think that’ll all go down to resource augmentation for the government.

I just wonder if the wriggle room is very little for this not to work out because there seemed to be limited revenue avenues otherwise, as well.

Chandresh: But the government has shown very strong resolve even for this year, for example, if the revenues were not there, they went and basically cut it so now that’s the point. So, if there is a significant shortfall there, then we will see what I think. I think the most important thing is people are I don’t know if you’ve seen some of the conversations which went before the budget that why the government should just let the fiscal deficit go out of the window and the simulator just be no pump prime the economy and all of that. The government doesn’t seem to be in that- they move to do that because that has really long-term ramifications. So, to get inflation high, interest rates high and then confidence for investors etc. So, I think they’ve been single-minded in their focus, let interest rates these stable, lower-level innovations controlled, let’s get capital, etc, which will come only when you have macroeconomic stability. So, I think all good.

I wonder if you think that what’s your assumption about how soon does credit become free? I know there are policies which also tried to talk in part, give incentives for all of that, but there are sectors which are constrained, we do a small piece called Real Economy Check, which is talking to companies, which are revenues, sub 200 crores and almost without exception, everybody has two single points of complain, which is one that the credit costs have moved up over the last six months for smaller companies, and there is lack of credit availability. How do you think how quickly the situation unravels itself and are there enough measures being taken to do that?

Sivakumar: That’s a tough one because it is you can lead a horse to water but how do you make a drink? So, I think the government and the RBI are doing everything they can to give that liquidity, cut the rates do everything possible. But how do you close that last mile in terms of getting the credit out there, which is not something that you can direct, meaning you cannot force the lending to occur. But the good news in some sense is this is events of credit- the credit events, we started with IL&FS, let’s say in August, September of 2018.

Now, it’s now getting to the 18-month anniversary. Interestingly enough, the last three to six months, we’ve not really seen too many new names pop up and which are unrecognized- meaning which have come up and are defaulted, which we are not already aware of the market, the market was not already aware of before. So, in that sense, I think even on the credit side, the problem is by and large recognized may not be provided for example, on bank balance sheets, but definitely recognized as such. So, once we get to the recognition point, I think we can move forward in terms of the new loans are not going to default at the same time. That’s the first, the second thing is that if you look at what the RBI has done in terms of adding three lakh crores of liquidity, now remember the three lakh crores of liquidity is excess liquidity on bank balance sheets which have been which has been lent back to RBI at 5 percent. Now, the weighted average lending rate of the banking system to corporates or on their loan book is closer to 10 percent, which means the banks are giving up half their income on that money. Another way of looking at it is the signal or the quasi signal the banking system is telling us is that by parking 3 lakh crores at 5 percent is that they’re worried about a 5 percent NPA problem or a 5 percent credit cost problem, which suggests even greater India now, I don’t think we’re going to have a 5 percent incremental NPA in year, right?

So, I think this system has taken a lot of knocks over the last couple of years, which is why it’s very slow to lend. It’s slow to lend, but it doesn’t mean it’s not ready to lend. It’s just I think it’s a matter of time before this money finds its way and I know you cannot lend out reserves, it’s not the way it works, but the amount of liquidity that’s out there can be leveraged and can be lent. I think the bank system will start to do that. In the next few quarters, it’s just, I think the RBI and the government have done their part. I think they have to just encourage the banks that this is the right time and the banks will figure it out because as soon as they see that the slippage is or not as much as it used to be, I think banks will lend.

I would want to end this with a final piece on how the AMC business is looking like as well and how would you conduct that but before they can you really not talk as a house? What do you think will work well? Have you spoken about how they might be a broadening of the base? But within that, do you reckon that some of the well-performing businesses which didn’t get valuations, well-performing

themes which didn’t get valuations might start getting valuations and if so, what? Conversely, or surprisingly, for a lot of people, while real estate may be in the dumps that index was the best performing index at the broader of the spectrum in 2019. Do you think some of these surprises may pop up and some of the usual high-quality financials and select other consumer-facing names would continue to do well? What do you think will do well?

Jinesh: See, a strong governed company, if the business is slow, people would like to wait we will load to invest if they are showing signs of recovery. The usual names who are growing at a decent pace than the industry averages will continue to do well. The recent QIPs and everything, you’ll see the huge demand, huge demand for some of the great businesses. I think at the end of the day, debt-free company, strong governance practices, and growth should play a great role in any of the business movements.

Largely around the companies that have done well in 2019. Do you see the other themes which are coming up which you think are good? I’m not asking you to name specific names, but any themes that look attractive?

Jinesh: Not as yet, but let’s say, I will give you an example, let’s say auto as a sector. It was it goes like a GDP multiplayer sector after financials and consumption. Somewhere something went wrong, whatever was the issue for the last two years it has broken down. Ideally, it should bounce back, what will it take 3 months, 6 months, 12 months? I don’t know, but at some point, of time, once the consumption picks up, there is latent demand. You saw some of the companies were able to sell us retail numbers in the last three months during the festive season. It is not that there is no demand at a price there is demand and it is the sentiment improvement that you need. So, as I said, if we will pick something, I think most of the sectors will start showing signs of recovery.

Final question. How’s the AMC business looking? And how do you think Axis AMC positions itself to take advantage of whatever is in the offing over the course of the next 11 months or the next 23 months?

Chandresh: I think the AMC business from a flow perspective is a trust business. If people trust and expect that things will be good for them, money does really flow then. The last, let’s say 12-18 months returns haven’t been that good. There has been obvious from the peak which we saw in 2017-2018. We’ve seen a significant fall in gross flow, certainly on the equity side, maybe over 30-35 percent. The credit events which happened on the fixed income side also there has been well. So, there it has been more of a shift from higher-yielding products to AAAs and high-quality paper products.

So, I think once it turns the other way, the expectation would be on that basis, you will start to see flows as have already been seen. I think December was okay, January was really very good. We’ll see how it goes. So, from an AMC perspective- this is from an overall industry perspective. Even in this period, when in the last 18 months fund houses still kind of bucked the trend or did well. I think for them, the flows have been reasonably good. Yes, the overall pie has shrunk, but their share and the flows have been stronger for those people. The idea from an AMC perspective is to try and have built that trust over a longer-term period where even we will not there. There will ups and downs where people can trust you that their money is in safe hands, money is in responsible hands.

Then you will keep getting those flows even when times are tough. As I said, when we’re doing good stuff the better-performing companies and, in our case, probably better-performing funds, they will get disclosed in proportionately higher market shares.

That’s something which certainly has happened last year and we would expect that now, this is something which continues and now that the industry is going to probably go back to see higher flows as I said initial numbers for January and then even February looks like going that way, means that there will be much bigger flows. I think the AMC business also has seen some kind of a bottom in terms of flows. Nets have been fairly poor in equities as well from Rs 20,000 to 30,000 crores of net flows, we were down to as low as 2000 crores. I think that also will kind of improve. So, I think the worst for the AMC industries also, we’ve not really gone that much. If you look at the period between 2015 to 2018, we doubled or even growing at like 26 percent. That growth has come down quite significantly. We are up just about double digits 9 to 10 percent. So, I think we will go back up, along with the economy as people are more exuberant, they feel that the risk, the worst is over, this is time to take more risk, etc. I think we will be getting back in there. So looks like there are good times ahead.

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