In the extraordinary past six months or so, the stock market has gone through wild swings.
The market has now recovered most of its losses, but there is unease among many about whether the rally will sustain. In this scenario, equity investors seeking to play it relatively safe can consider deploying money in a staggered way in large-cap stocks through the systematic investment plan (SIP) route.
Fundamentally strong large-cap stocks — thanks to their size, market leadership and financial muscle — could likely weather a market downturn better than mid- and small-cap stocks.
A well-run large-cap fund with a good track record could thus be a safer bet for investors in these ambiguous times.
SIP investments can help take advantage of market weakness, if any, by helping average the overall cost of purchase.
Axis Bluechip is among the good choices in the large-cap category. In the past few months, the fund has re-established its position as one of the men among the boys.
During the sharp market fall in March, it lost far less than its benchmark (Nifty 50 TRI) and the equity large-cap fund average. While the scheme lagged in the recovery in the subsequent months, it is an outperformer on a year-to-date basis, thanks to its effective loss containment — a key factor in driving returns.
Over longer periods, too, the fund is in the top-quartile in the large-cap category and has comfortably outperformed its benchmark — with returns of about 5 per cent over the past year and about 9 per cent annualised over three years and five years.
Except in CY2016, when it underperformed, the fund has been a consistent outperformer both during market upsides and downsides.
Axis Bluechip has a mandate to invest at least 80 per cent of its portfolio in large-cap stocks with the leeway to invest the balance in smaller stocks. But over the past couple of years, the fund has reduced its exposure to smaller stocks and its equity portfolio has become almost entirely large-cap oriented.
It has also been deft with allocation across assets, shifting from equities to cash and debt, and vice-versa, depending on market conditions.
For instance, the fund reduced its equity exposure from about 90 per cent as of January 2020 to less than 80 per cent as of March 2020 and then increased it to 91 per cent as of July 2020.
For its core portfolio, Axis Bluechip follows a bottom-up, fundamentals-based investment approach focussing on quality businesses having good growth prospects. It also takes tactical positions in quality cyclical stocks linked to the views of the fund manager (Shreyash Devalkar) on cyclical factors and market positioning.
The fund adopts a 60:40 ratio in its portfolio between market leaders and challengers that are gaining market share and can deliver alpha (excess returns over the benchmark).
The return on equity and earnings growth of its portfolio stocks in FY20 was higher than that of the benchmark.
The scheme seeks to keep risks low by having a relatively liquid portfolio and by keeping its target volatility below that of the benchmark.
The fund maintains a compact portfolio of about 25 stocks, but the focus on bluechips reduces concentration risk. The scheme’s top holdings as of July 2020 are Infosys, HDFC Bank, Reliance Industries (including its partly paid shares), TCS, Bajaj Finance — these account for about 40 per cent of the corpus.
Since February, the fund has increased its exposure to the in-favour defensives — software, consumer and pharma stocks such as Infosys, HUL and Dr Reddy’s. It also increased exposure to Reliance Industries that has had a strong run.
Stakes in banking and finance stocks have been reduced, though it still remains the largest sector allocation at about 30 per cent of the corpus.