Axis Midcap Fund Growth INF846K01859

The Axis Midcap Fund distinguishes itself through its steadfast adherence to its mandate, characterized by stable leadership under manager Shreyas Devalkar and a framework firmly grounded in relative quality and growth. The manager's skill in stock-picking, coupled with his unwavering commitment to the mandate and refusal to stray from the established framework, is a notable positive aspect, especially during challenging performance periods for the fund. That said, the equity team at Axis MF is undergoing a transition currently, and until it stabilizes, our confidence remains muted. We retain the Pillar rating of Average for the People and Above Average for the Process.

Lead manager Devalkar has been managing this fund since November 2016 and plies a structured and well-thought-out process of investing with a focus on relative quality and growth. This approach leads to a well-defined stock-selection process. Prior to joining Axis MF, for five years Devalkar was associated with BNP Paribas (now Baroda BNP Paribas) as a fund manager where he managed similar strategies. Overall, Devalkar’s more than a decade long experience encompasses working as a credit analyst, a sell-side broking analyst, and a buy-side equity analyst covering multiple sectors, and that is a positive.

Devalkar employs filters to assess businesses based on growth and quality relative to their peers. He favors companies that prioritize the interests of minority shareholders and stakeholders. Devalkar plies this same framework on the Axis Bluechip Fund as well. While there is similarity in the overall framework, the universe for the Bluechip fund and the Midcap fund is very different, and therefore the outcome of the filtered names (that is, the portfolio) is very different. Devalkar prefers to construct a well-diversified portfolio of around 60 names. However, given the sharp uptick seen in the midcap segment in the recent past, this number has increased slightly. From a risk management perspective, exposure to single names is capped at 5%, and within that, active buying doesn’t exceed beyond 3%. Devalkar’s framework for this fund is rooted in bottom-up stock-picking, and therefore there are no sector and stock deviation limits. Having said that, thorough research and due diligence is at the core of Devalkar’s approach to fund construction.

The longtime manager and head of equities, Jinesh Gopani, departed from the fund house in September 2023, having been associated with it since 2009. Following Gopani's exit, Devalkar was promoted to the position of head of equities. Devalkar has experienced an increase in responsibilities following Gopani's departure. To address this, proactive measures have been taken to reorganize the team and redistribute his workload. In August 2023, Nitin Arora was appointed as the comanager for the fund. The recent appointment of Ashish Gupta as the new chief investment officer is a strategic move to enhance oversight and management of the investment function, with both heads of equities and fixed income reporting to him. The team is in a phase of transition, aiming to grow from its current composition of eight managers and six analysts to a larger team of nine managers and nine analysts.

Devalkar’ style and framework were extremely rewarding during the years of 2018-20, during which period it was among the first quartile in all the years. However, from mid-2021 onward, the fund’s performance started to show signs of dipping and has continued to be disappointing in terms of performance so far. This has been largely due to the style headwinds and names that are not a part of the manager's quality and growth filtration process doing well. Pleasingly, the manager has not deviated from his framework.