2021-09-04 14:06:20
*Axis Top Picks for the month of September 2021.*
*Style rotation holds the key!*
*Axis Top Picks basket delivered a positive return of 1% during the month as the market breadth narrowed and high-quality Large Cap stocks outperformed the broader market. The Small Cap index declined by 3% during the month and a significant divergence between the returns was observed between the Top 50 and the rest of the market. Interestingly, IT and FMCG were the top-performing sectors for the month with monthly returns of 13% and 10% respectively. Apart from IT and FMCG, private banks delivered healthy returns of 5% during the month. On the other hand, the Metals sector, which had been one of the strongest performing sectors over the last several months, cooled off and corrected by 1% during the month. The Automobile sector continued to underperform during the month with marginal negative returns as news of chip shortages impacted the largest manufacturer Maruti.*
*While the sector performance has been a mixed bag, the overall market trajectory continues to remain positive. Furthermore, volatility continues to remain much below the long-term levels indicating a limited scope of significant market correction from the prevailing levels. We make minor changes to our Top Picks by taking Lupin out of the portfolio and adding Krishna Institute of Medical Sciences to it. We maintain our other Top Pick recommendations unchanged as we continue to foresee significant upside potential, moving forward.*
*Our Key themes are as follows: *
*Earnings continue to see upgrades:* While Q1FY22 earnings were a mixed bag, NIFTY 50 earnings have seen further upgrades on account of an encouraging performance by Metals, IT, and Cement sectors. Though the majority of the companies managed to meet or beat earnings expectations during the quarter, a significant number of companies such as Maruti, Dr Reddy’s, and a few others also missed the estimates by a significant margin. The Pharmaceuticals sector continued to deliver a mixed bag performance with Dr Reddy’s missing the estimates on account of margin pressures while the industry bellwether Sun Pharma beat the expectations. The sector continues to see margin pressure in the overseas market but the domestic business has continued to remain strong. The IT midcaps delivered excellent results and the stock price appreciation was also significant during the quarter. Tech Mahindra was one of the top-performing stocks among the larger tech companies during the quarter. Also, during the month, Bharti Airtel and Reliance industries outperformed the benchmark after a long period. Tariff hikes in the sector and chances of a duopoly were the key reasons for the outperformance. Bharti continues to look attractive at the current levels.
*Volatility continues to remain range bound, signaling the continuance of strong bull market:* Even as the Small and Mid Cap indices underperformed during the month, the volatility index remained range-bound and hovered around the 13 mark during the month, which is significantly lower than the long-term average of 22. We believe the volatility index will continue to remain around these levels which rules out chances of significant market correction in the near term.
*Quality back in focus; Opportunities in small and mid-caps continue:* Quality theme is clearly back in focus as we had highlighted in our last month’s review. Likes of HUL have outperformed the market during the month indicating the market’s focus on sustaining returns. We have also noted that even in the Mid and Small Cap space, quality stocks have outperformed the non-quality stocks by a significant margin. Moreover, this divergence is quite significant in the Small Caps as compared to the Large Caps, clearly indicating that the allocation will increasingly shift towards Quality stocks across the board. In conclusion, attractive opportunities continue to remain in the Small and Mid Cap space.
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