Karthik Kumar, fund manager at Axis Mutual Fund, has shared his contrarian view on the momentum investment strategy, suggesting it could potentially surprise investors in the coming year despite recent underperformance.

Momentum Strategy: A Contrarian Bet

Kumar believes that the momentum strategy, which has faced challenges in the past six months due to tariff and policy uncertainties, could make a comeback as market conditions stabilize. He points out that historically, this strategy has outperformed the Nifty 500 index by mid-single digits over 5- and 10-year periods.

Sector Positioning

In light of his outlook, Kumar is positioning portfolios with overweight exposure to several sectors:

• Consumer discretionary
• Non-Banking Financial Companies (NBFCs)
• Pharmaceuticals
• Renewables
• Power transmission and distribution
• Defence

Market Outlook

While optimistic about the momentum strategy's potential, Kumar also anticipates possible challenges in the broader market:

1. Time Correction: He suggests that markets might undergo a time correction, driven by moderating economic growth and earnings revisions.

2. Long-term Opportunity: Despite short-term challenges, Kumar maintains that India remains a medium to long-term growth opportunity for investors.

Investment Advice

Given the current market dynamics, Kumar recommends that investors diversify across various investment styles. This approach, he suggests, will help navigate market cycles more effectively.

Recent Performance

The momentum strategy has experienced drawdowns in the last six months. This recent underperformance comes against a backdrop of tariff and policy uncertainty, which has affected market dynamics.

Kumar's contrarian view on the momentum strategy highlights the importance of looking beyond short-term performance when making investment decisions. As always, investors should consider their risk tolerance and investment goals when adjusting their portfolios based on market insights.

Axis Mutual Fund has announced the launch of its latest offering, the Axis Nifty500 Quality 50 Index Fund, an open-ended index fund designed to track the Nifty500 Quality 50 Total Return Index (TRI). This new fund aims to provide investors with exposure to 50 high-quality companies selected from the broader Nifty 500 universe.

Key Features of the New Fund

• NFO Period: The New Fund Offer (NFO) is scheduled to run from August 21 to September 4.
• Minimum Investment: Investors can participate with a minimum investment of ₹100.00.
• Fund Management: The fund will be managed by experienced professionals Karthik Kumar and Hitesh Das.
• Index Methodology: The underlying Nifty500 Quality 50 index employs a rules-based approach to select companies, focusing on three key factors:
  1. Return on Equity (ROE)
  2. Financial Leverage
  3. Earnings Stability

Performance and Risk Profile

The Axis Nifty500 Quality 50 Index Fund offers an attractive proposition for investors seeking quality exposure in the Indian equity market:

• Historical Performance: Over the 15-year period ending July 2023, the underlying index has demonstrated strong performance:
  • Nifty500 Quality 50 TRI: 15.60% Compounded Annual Growth Rate (CAGR)
  • Nifty 50: 12.10% CAGR
• Risk Management: The index has shown lower volatility compared to the broader Nifty 50, potentially offering a more stable investment option.

Investment Strategy and Rebalancing

• Diversification: The fund provides diversified exposure across various market capitalizations and sectors.
• Rebalancing: The index, and consequently the fund, will undergo semi-annual rebalancing to maintain its focus on quality stocks.

Exit Load and Investor Considerations

• Exit Load: The fund carries an exit load of 0.25% if redeemed within 15 days of investment.
• Investment Horizon: Given its equity focus and index-tracking nature, investors should consider this fund for long-term wealth creation.

Conclusion

The Axis Nifty500 Quality 50 Index Fund presents an opportunity for investors to gain exposure to a curated list of quality stocks from the Nifty 500 universe. With its rules-based selection process and focus on financial stability and performance, this fund could be an attractive option for those looking to invest in a diversified portfolio of quality Indian equities. As always, investors are advised to consider their financial goals, risk tolerance, and consult with a financial advisor before making investment decisions.