How Are Fund Houses Looking At FY27 | Set Realistic Expectations

Added: 2026-05-12

[00:00:07]All right. Now, in the second half of today's program, I'd like to get you a voice that'll help you understand how fund managers and fund houses are planning their strategies because there's so many moving parts as things stand right now. So, let me introduce you to our Shiva Kumar who's the CIO of Axis Mutual Fund. Uh Civa, thanks so much for taking the time and I think a lot of people will be wondering. You've had the prime minister come in over the weekend and uh make this exhortation to say look you need to cut your purchases of gold. You need to stop purchasing gold for a year. You need to try and reduce your consumption of petrol and diesel. It brings to the four a statement that this geopolit political crisis and the effect of that high energy cost is very close to home and we've been shielded but there is a problem. Are you seeing that when you look at companies and you're studying them and you're looking at the earnings potential have you factored that in in FI27?

[00:01:06]>> Um thank you thank you first of all for having me on. It's I think extremely important that we uh discuss and understand the impact of this crisis in West Asia not just through the lens of oil and for example gold but also more broadly in terms of uh the supply risks that we see across commodities uh and as well as demand because West Asia accounts for a significant part of our exports also. So I think it's very important to see from a macro perspective which is potential that we could have it has a potential to be um to bring some risks home. Uh I think the most important risks are two parts. One is uh the commodity availability and price risk. So we are seeing pressure in terms of oil prices go up, gas prices go up but more importantly lack of availability of some of these products especially gas and that I think will have some impact on the industrial sector. Uh now having said that the other half of the picture is demand and I think on the demand side things have been a lot more resilient. Uh most of the companies if not all that we have speaking to are reporting that demand conditions are quite stable and strong.

[00:02:15]So what why that why I'm hopping on that is because when you look at it from the perspective of demand satisfaction the lack of availability of raw materials means you may be delayed in satisfying that demand for a quarter maybe two. as long as the demand holds. But if we see demand slowdown, certainly we will have to revisit the entire calculation. So the important thing right now from our perspective is to see if there are any uh really medium-term impact on demand.

[00:02:40]But I think on the near term we are while we see supply disruptions, we're not really changing our views.

[00:02:46]>> Okay. Interesting. So uh it's a little bit of a dynamic situation, right? um civa because if you think about it right now we're basing all our expectations on the fact that the crisis is not yet over uh and we have to assume at this juncture without knowing anything else that it could well persist for longer and so from that perspective we were speaking to somebody earlier today and they were saying look don't expect anything from FY27 if earlier the expectations for the large cap counters was an earnings growth in double digit you'll have to dial that back to single digit. The broader markets even in Q4 a lot of companies posting very strong bottom line growth and there was a recovery but if you look now the Q4 looks like it's it's happened two years back based on what's happening in Q1. So therefore should you be prepared to dial down your return expectations?

[00:03:44]>> No, I I disagree there completely. I think the uh underlying momentum of the Indian economy has turned the corner or it looks like it has turned the corner in many respects. It's not only seen in the earnings and we've had two quarters now, December quarter and March quarter where the results have been pretty strong on the on a wide base of companies. So it's not a one quarter flash and the pan type of results. But more importantly, if you look at the other indicators which are there in in terms of the breadth of the economy, I mean you take a look at bank credit.

[00:04:10]Bank credit was languishing at barely 9 10% kind of growth a year ago and now we're looking at 15 16% kind of growth.

[00:04:17]Now when you when people borrow people are not borrowing just for the fun of it because they believe that there is an opportunity to use that cash in business right u currency in circulation has spiked uh not related to the election but even before the last six months we've seen an increase in currency again people hold cash uh when they feel the need to do transactions so in many respects I think we have as an economy as a macro um outlook had really turned the corner now obviously we have to take a quarters or two pause where we'll have to reassess whether that momentum sustains because if the moment momentum gets broken certainly we will have to uh re-evaluate our views but I think if the momentum holds and at least early signs are the macro momentum in holding from an equity market perspective we can live through one or two quarters of uncertainty yes if this war persists in for 6 months or more uh certainly we'll have a situation where we have to reassess the impact on demand and on growth but I think for now we are seeing this as transitory uh and as long as the underlying growth momentum is there uh we should be seeing uh four quarters from today uh a lot better you know in terms of economic outcome >> okay >> four quarters of pain but not four quarters >> okay so that's good to hear um about strategy and incremental allocation then from this point uh Shiva the broader markets have actually come back quite strongly right in April if you think about it at the benchmark level itself small cap index gaining as much as 17 odd percent the midcap index 13% earlier this week the midcap index trading at all my eyes. I mean, I I didn't anticipate that you would say this in the month of March, but would you say that it's better to have a diversified fund kind of an approach because fund managers can then be more nimble and how are you managing or how is a fundhouse managing their multicap and flexiap strategy at this juncture?

[00:06:05]>> Good questions. Absolutely. I think what is underpinning the strong performance is the reality that while your large cap companies are in some sense constrained by overall macro right if for example last year that is financial year 26 the second advanced estimate of GDP for nominal GDP is about 8 and a half% right so that what that means is for large cap companies that's about the bound of earnings growth now the the estimate for next year is let's say 10 or 11% that gives you a kind of starting point that large cap should grow earnings at 10 or 11%. Some will grow more and some may grow a little bit less but in aggregate that because large cap companies large diversified and are macro sensitive that's where large cap earnings will lie. The differentiation is really happening at the smaller companies where I think the export sensitivity is much higher where I think the manufacturing sector resurgence is being shown that's that's showing up in midcap and small cap. So that's where you've seen disproportionate earnings growth much faster than the macro economy. And that's where you're seeing money flow.

[00:07:04]That is people who want to see that growth are not just buying large caps but actually buying midcaps and small cap. So what has this done is that it has also tilted the valuation quite a bit. Today midcaps and small caps as you rightly said have recained previous highs uh and are trading quite expensive and large caps actually have not traded that high and over the last couple of years have actually derated in terms of their valuation. So in that sense you have a situation where large caps offering slightly better value relative to its recent past and midcaps small caps are more expensive with much higher growth. So a balanced approach makes a lot of sense rather than taking a hard approach that I only buy large caps or only buy small caps. I think you will need to take a more of a balanced approach. Uh today when you take a fund like a multi cap fund we are 50/50 split between large cap and medium small together. So that reason I think is just that we having more valuation comfort in the larger companies and incrementally as we see the growth valuation trade-off getting better in midcap small caps in certain pockets that's where we can increase our allocation >> interesting okay I want to delve a little deeper into that because Axis mutual fund known for its growth quality bent in that context what is the approach and how is your portfolio strategy aligning with your uh philosophy when you look at deploying funds in the market right now.

[00:08:25]>> So when you look at growth I think in India is a growth market. No one is allocating to India because they see value here. I mean our the value index in India trades at you know 18 to 20 times. So there is no such thing as value. You have entire economies in the rest of the world where the our total market is trading in single digit peaks.

[00:08:41]So clearly India is not a value market.

[00:08:43]Where India shines is really is where you can get disproportionate growth and that is where you need to be careful.

[00:08:49]Yes, you are buying growth. You're buying high quality companies, but are you overpaying for them? So, you still need to have a bent of mind that says that I'm okay, I'm seizing growth. I want to get a pie, a share of that growth pie, but I'm not willing to pay any price for that. I need growth at reasonable price. This makes it a bit of a challenge when pockets of growth are extremely overvalued. So, you need to be very careful in making those allocation decisions. As a fund house, we're very clear. It's growth first, but it's not growth at any price. You need to have a valuation framework that you have a certain target price or a fair value in mind when you're making investment decisions. It's okay to pay a small premium as long as you know where growth is headed but we are certainly not a growth at any price type of a house. We want to be a quality growth house but we want to respect market valuation as well.

[00:09:34]>> That's an interesting perspective. So I wanted you to complete that because I have a counterargument. It's always relative, wouldn't you agree, to say, for example, that a large telecom company in India had or has a three-year trailing PE of close to 50 times. And if it is currently trading at 35, relatively speaking, one can argue that it is it is cheaper in terms of valuation and so therefore the valuation value argument can be made.

[00:10:05]>> No, it's not value. There's a big difference between outright value and relative valuation. I think we have to distinguish that very carefully. When you look at value, it is like for example, let's say for example large country, take case of where China was a couple of years ago, the entire market was trading at like nine times, right?

[00:10:22]That is value wherein you have really you're not talking about 35p. We're talking about single digit P. Even today in in Asia, you can find multiple countries which are still trading at single digit PS, right? So that is value wherein you can say okay even if there is no growth at this price the earnings even if they don't grow will still justify me buying them buying that market right it's cheap enough but in India we look at relative valuation because we want to buy stocks where the growth is there disproportionate growth is there and where I'm not overpaying for that growth so it is very important to distinguish between the two India is certainly not in any consideration a value market now so-called value stocks in India have done well over the last four five years especially postcoid uh during that supply chain and commodity cycle right and you can argue that yes India has a value market but you have to remember that in that same era those same companies showed maybe 20% plus earnings growth so the the first quality is growth and then they were relatively cheap so they did really really well but they got the trigger for rerating of so-called value stocks was actually growth and not valuation themselves >> okay >> so I think first step is identifying pockets of opportunity in terms of growth and it has to be forward looking we can't look at the last couple of years growth but rather where is growth headed and how much are we willing to pay for >> okay so so therefore the to the to the nub of the issue Shiva uh in terms of where uh access is looking at and finding opportunities you've already indicated that you're uh looking at large cap and saying that relatively more comfortable picking stocks and weightage right now is relatively higher than your diversified strategies can Can you give us a few themes that the fund houses identified that should showcase opportunity in the next one to two to three years?

[00:12:10]>> Right. See it's it's when we discuss large cap versus small cap. Yes. I mean in aggregate large cap seems to offer the valuation. Uh large cap also you need to distinguish right. So for example financial service I think we've seen significant growth coming from bank but actually even stronger performance from non-bank financials. I think that's a space where there is good opportunity and uh the multiples are reasonable. I would say some in some cases cheap. Uh but if you look at it for example where growth is growth is pretty much absent it you know even though valuations look uh like they have come off that's place we are still underweight. So you have to distinguish it that are sectors where we are comfortable where we are not auto is still a pocket of strength. So there are places that we can really really play even in the large cap space. But if you go outside just the headline large caps then you really the big theme I think that's under play is uh manufacturing.

[00:13:00]This is this this ties into whether it is uh defense or whether there is this auto autocillaries uh to traditional industrials. I think there's a lot of appetite there. We're also seeing a lot of opportunities in this uh in the in the third world which is you know you're seeing energy transition taking a big step forward. You're also seeing switch from fossil fuel to electrification taking a huge step forward in the next few years. So anything related to the power sector now those stocks are expensive and uh so you have to be very careful where you participate but the opportunity exists uh uh as a theme to play uh at the right price or at the right time.

[00:13:36]>> Okay. Uh so actually very insightful conversation SA because it tells me what your own expectations are for FI27. not really very bogged down. You look at this as transitory. So that's my big takeaway. Thanks so much for taking the time.

[00:13:52]>> Thank you.

[00:13:53]>> That brings us to the end of this edition of Your Money Matters. Thanks so much for tuning in and do stay tuned.

[00:13:57]This is NDTV Profit.