Last year was unpredictable for sure but what has been equally surprising is the market hitting an all-time high. Jinesh Gopani, fund manager at Axis Mutual Fund, says that increase in home loans disbursal and fewer job cuts indicate that things did not turn out as bad as was expected. He tells Outlook Business how digitisation has mitigated the disaster that was COVID-19, and how the fund is betting on the innovation happening in venture investing.

What has been your strategy through the market volatility, when it cratered last year, and now as it has hit an all-time high recently?
Frankly, we had never anticipated the lockdown. The economic activity went down to zero. The initial period was spent understanding health issues and their impact on the economy. If you recall, even before the COVID-19 crisis, economic activity had been slowing down for two years; GDP growth had declined from 8.5% to 4.5% over that period. So, even before the pandemic struck, we had been investing only in opportunities that would see good growth irrespective of the economy. Fortunately, we were also sitting on a decent amount of cash, which was 7-10% on average across our funds.

When the lockdown happened, the only thing we did was to see how balance sheets of our companies would be affected and move to those which had the resilience to withstand this difficult period. Ex-financials, most of our companies are debt free, so we handled that initial period well, when the market was down 35% during March. Since financials is a leveraged sector, we cut some of our positions and went into pharma. The next few months we were cautious and, by August-September, when we sensed that the recovery was good and the bounce-back was solid with the support of government spending, we loaded up again with some of the names that we felt were strong and could become winners going forward. Now in our portfolio, we again have companies from the financial and capital goods space, and so on.

Overall, although 2020 was unpredictable, our portfolio companies managed well. From the largest among them such as Reliance Industries to the smallest such as Phoenix Mills, they were able to raise capital. Overall, companies with strong balance sheets and good management have been able to navigate this cycle well. What has worked well this year is safety and consistency, rather than high beta. These are the things we captured in our portfolios as well.

Do you think the recovery we are seeing is for real?
When demand started to recover, people were saying that it was pent-up demand and that it will go down again. But, if you really look at it, it is demand recovering after three years because we were in slowdown even before COVID-19. We are surprised that even demand for home loans has gone up and that is a big-ticket item. This is because, in the organised segment, there have been virtually no job losses. When we looked at the Top 200 companies and spoke to the managements, everyone had hiked salaries, and none had laid off staff and they had just dealt with their regular attrition. In the IT and financial services sectors, and even in a company such as L&T, which employs 400,000 at any given point, things are back to pre-COVID levels. Perhaps, the fear of job losses has not come true. Plus, financials which is 40% of Nifty’s basket has recovered smartly.

One important point to note is that, while the organised sector has bounced back, the unorganised part of the economy is still struggling. There is clear shift in market-share from unorganised to organised across sectors. Even in real estate, even as housing momentum has picked, top builders are able to sell their property pretty fast whereas developers having one or two properties are struggling to make a comeback.

Going forward, unless we have a second or a third wave that is massive and the government declares a lockdown, we should be okay. But we have to be cautious as investors.

Why do you say financials have recovered smartly? Even after the moratorium period, banks have not reclassified their bad assets.
I am not saying everything is hunky dory. There are pockets of pressure. But the initial estimate after the lockdown was that the retail cycle will play out because there will be huge job losses in the organised segment, but that never happened. This has been reaffirmed by an increase in home loan disbursals, which would not have gone up if the cycle was bad. The disbursals indicate that top-tier banks and non-banks are comfortable in terms of asset quality.