There are four primary phases of the business cycle being expansion, peak, slowdown, and trough. Every economy, and by extension, business goes through these phases. How long a phase will last, or when it will move into the next phase is uncertain. Business cycles funds try to identify cycles right for an investment opportunity.
According to the fund house, the domestic economy is in an interesting phase right now. The onset of the Covid 19 pandemic made matters more challenging amid the NBFC crisis pre-pandemic. However, things have started to look up in the post-Covid phase as we stand at the cusp of a new capex cycle. Balance sheets have strengthened across large companies, domestic demand is robust, there is increased focus on PLI schemes which can boost capacity addition, and there is widespread digitalization offering a strong impetus to the economy. This may be indicative of us being in nascent stages of expansion. If Consumption was the primary driver for economic growth in the last decade, investment led by capex and manufacturing could also be a growth driver for this decade. In such a growth environment both B2C that is Consumption led businesses as well as B2B sectors which are more cyclical can do well potentially.
“If one were to assess India’s growth through a ‘Business Cycle’ lens, we are currently at an interesting position, between the Expansion and Peak phase. Multiple drivers are beginning to fall in place for investment cycle pick up in India. Axis Business Cycles’ unique hybrid investment approach (mix of Top Down and Bottom Up) follows the Quality style of investing and offers no market cap bias to investors. As a fund house that believes in leveraging market opportunities in a disciplined manner, we believe that the Axis Business Cycles Fund will be a notable add on in an investor’s portfolio,” says Chandresh Nigam, MD & CEO, Axis AMC.
The press release said that the fund will have a cycle-driven portfolio. In expansionary times, the fund would focus on building a cyclical sector-based portfolio of companies which would benefit from an impending favorable upcycle. During slowdowns, or uncertain times, the portfolio would tilt to counter cyclical themes or companies that would be in a better position to navigate tough times.
Contrary to the bottom up approach to investing, this fund will employ a hybrid approach to investing. A top down approach to identify economic trends and {more importantly choose sectors ideally suited to benefit from their business upcycles} and then, use a bottom up approach to identify particular stocks who would thrive above the rest within the identified sector.
Further, the fund will follow a dynamic approach with no market bias. It will have the flexibility to be more aggressive in terms of overweight and underweight across sectors. It means that when we find an opportunity in a sector, we will try to build a bigger position in that sector showing our high conviction. Equally important would be to try to cut our weightages as the investment story plays out, and we move onto the next sector with an imminent favorable upcycle.
