Hindsight is 20/20

Introduction
A year of transition, a year of pain, a year of disruption and a year of recovery. For most investors, 2020 can be
characterized as one year where markets changed fortunes. From a grim March to a euphoric November, equity
markets have been on a rollercoaster ride – a reminder that Equities are a volatile yet rewarding asset class.

2020 In Charts

Crude Oil goes Negative Nasdaq does well

1000 Tesla the world's best performing stock
65
50 800
YTD Gains
35 600 Nasdaq: 44%
20 Tesla: 845%
400
5
-10 Dec-19 Mar-20 200
Jun-20 Sep-20 Dec-20
-25 0
-40 Dec-19 Apr-20 Aug-20 Dec-20
Nymex Crude Nasdaq Tesla

All That Glitters isn't Gold

A Tale of two IPO’s
190 YTD Gains
Ant Financial AirBnB
160 Gold – 28%
Industry Finance Hospitality Silver – 54%
130
100
Country China USA
70
IPO Size US$36 Billion US$2.5 Billion

Oct-20
Dec-19

Dec-20
Jul-20
Jan-20

Jun-20
Apr-20

Nov-20
Aug-20
Feb-20
Mar-20

Sep-20
May-20

Current Market
IPO Pulled US$89 Billion
Cap
Gold Silver

COVID has been a major disruptor: app downloads now Vs pre-Covid Levels
(3QCY20 vs 1QCY20)
2.0x 2.1x
1.6x
1.3x 1.4x
1.0x 1.1x 1.2x
0.8x 0.9x
0.5x 0.6x
0.3x

Source: Yahoo Finance, Axis MF Research, Data as of 18th December 2020.

Nasdaq and Tesla prices normalized to 100. Gold & Silver prices normalized to 100 and represented in US Dollars per
ounce traded on the Chicago Mercantile Exchange. Past performance may or may not be sustained in the future.
Sector(s) / Stock(s) / Issuer(s) mentioned above are for the purpose of illustration only and should not be construed as
recommendation. The fund manager(s) may or may not choose to hold the stock mentioned, from time to time.

Hindsight is 20/20 1
Where do we go from here?

The Economy
After a tumultuous 2020, we expect 2021 to look markedly different on the growth front. With high-frequency data
improving, we maintain our view that the economy will reach the pre-pandemic level of output by end-2020. We
remain constructive on the growth trend and expect the recovery to gain strength from Q2 FY21 onwards. We
expect a still-accommodative monetary policy stance to support the recovery and structural reforms to lift medium-
term growth prospects. The growth mix should be relatively more productive as we expect capex to pick up – initially
by public infra spending, and later by an improvement in private capex.

60% High Frequency Indicators highlight a sharp recovery

40% 15%
20%
5%
0%
-20% -5%
-40% -15%
-60%
-25%
-80%
-100% -35%
Mar-20

May-20
Apr-20

Nov-20
Oct-20
Aug-20
Feb-20

Jun-20

Jul-20

Exports GST Collections Sep-20 Two Wheeler Sales

Passenger Vehicles Power Demand, RS Rail Freight, RS
Data as of 30th November 2020.
Source: Ministry of Power, GST Council, CEIC, Morgan Stanley Research, Axis MF Research.

Inflation
Inflation has surprised on the upside in the last few months and is tracking above the upper level of the central bank
threshold (of 6%). We expect inflation to decelerate from the current high levels; however, it is likely to remain near
the 4.5% mark for a good part of next year, with core inflation remaining firm as growth recovers.

Inflation Remains Persistently High

8.0
7.59
7.0 6.93
6.0
5.0 4.83
4.0
3.0 3.28
2.0
1.46
1.0
0.0
Nov-15 Nov-16 Nov-17 Nov-18 Nov-19 Nov-20

CPI Inflation (%) Lower Band Higher Band

Source: Bloomberg, Axis MF Research. Data as of 30th November 2020.
Bands are as defined by the RBI as part of inflation targeting.

Hindsight is 20/20 2
 Equity Markets
While frontline indices have recouped losses from the march lows, and have subsequently seen a YTD gain of 14%,
the narrow market environment several companies continue to remain materially lower to their January highs.

18% 2020 - Classic Market Polarization

16%
14%
12%
10%
8%
6%
4%
2%
0%

Energy (ex RIL)

Infotech

Pharma

Div Financials,
Private Banks

cyclicals

cyclicals

Defensives

NBFCs

PSU Banks
Reliance

Telco
Investment

Domestic

Metals & Mining

NIFTY
Source: Bloomberg, Goldman Sachs, Axis MF Research

A sectoral deep dive illustrates this very well. As we stand today, there are several segments of the market where we
continue to see opportunities. In line with the recovery theme as the economy returns to a mid-to-high growth
environment, several domestic cyclicals are likely to be beneficiaries of the new growth cycle. The last 2 years have
seen a large degree of cost optimizations and deleveraging play out and should further add a material fillip to growth
stories in the post Covid environment.
Sector Current Change since Dec Peak Change Current Pre-Covid TTM Change
Forward P/E 2007 market peak P/E TTM P/B P/B (Jan’20)
Info Tech 23.5x 29% 25.4x (7%) 6.6x 5.4x 22%
Consumer staples 43.9x 94% 45.2x (3%) 10.6x 13.1x (19%)
Health care 27.8x 32% 28.6x (3%) 4.6x 2.4x 92%
Energy 17.3x (21%) 22.2x (22%) 2.0x 1.9x 6%
Cons. discretionary 29.7x 85% 38.4x (23%) 3.6x 3.0x 17%
Financials 24.5x (17%) 29.6x (17%) 3.0x 3.0x 1%
Materials 19.2x 42% 24.5x (22%) 2.2x 1.8x 18%
Industrials 24.1x (28%) 33.3x (28%) 3.2x 3.7x (12%)
Utilities 8.2x (73%) 29.7x (73%) 1.2x 1.2x (3%)
NSE 100 26.9x 17% 26.9x 0% 2.9x 2.9x 1%

Source: Goldman Sachs, Axis MF Research, Data as of 18th December 2020. Peak P/E is the highest forward P/E estimate since 2004 as polled by Bloomberg.
TTM – Twelve months trailing, P/E – Price earnings ratio, P/B – Price to book . Sector(s) / Stock(s) / Issuer(s) mentioned above are for the purpose of illustration
only and should not be construed as recommendation. The fund manager(s) may or may not choose to hold the stock mentioned, from time to time.

Valuations
There has been a large rerating in a relatively short span of time and hence caution is warranted. This has been
fuelled by Covid cases/fears coming down, economic activity sharply bouncing back to pre-Covid levels, positive
news flow on vaccines, strong 2Q earnings led by cost management and global QE/weak USD support which has
resulted in massive FPI inflows into India.
At ~20x FY22E (which is premised on superlative earnings growth in FY22E), the market does look optically elevated
and hence one must remain cognizant of fundamentals. Continued liquidity could keep the market levels elevated but
liquidity is a tough variable to model. Globally, India remains in sync with the rest of the world and hence a global
liquidity remains a key risk to current valuations.

Hindsight is 20/20 3
 FPI Ownership Weak earnings distort traditional
FPI holding in Indian equities (US$ bn)

500 22% Valuations

20.6% 20%
450 30
20%
400
350 18.7% 18%
18.5% 20
300
250 16%
200 10
14%
150 Apr-10 Dec-12 Aug-15 Apr-18 Dec-20
100 12%
Jun-15
Dec-15
Oct-11
Oct-12

Jun-18
Dec-18
Jun-13
Dec-13

Jun-16
Dec-16

Jun-19
Dec-19
Jun-17
Dec-17

Jun-20
Jun-14
Dec-14

NIFTY 50 P/E Average

+1 Stdev -1 Stdev

Source: Bloomberg, NSDL, NSE, Axis MF Research. Data as of 18th December 2020

Mid & Smallcaps – An Opportunity

Covid has been a great opportunity for many mid and Smallcap names to retool and refocus on their business. We
believe companies in this segment are likely to benefit from 3 major tailwinds in the post Covid environment
• Lower cost of capital: Lower funding costs and a recovering economic cycle augers well for growth prospects of
well managed businesses with innovative and well-articulated business models. Currently low interest rates have
also dramatically improved profitability and project IRRs thus benefiting long term investors and promoters.
• Availability of capital: Easy liquidity conditions and global influx from new age sources of capital like PE/VC
funding as well as deeper financial markets offer opportunities to fund business growth and novel ideas
• Renewed focus of government on import substitution & exports: As India works towards becoming the next
manufacturing and services hub of the world, global opportunities for demand buoyed by government incentives
is likely to usher a multi-year growth phase for MSME’s and smaller listed players.

Debt Markets

Duration
Domestic bond yields have followed the operative rate downwards as the RBI and the government have emphasised
of bringing rates lower through policy action and accommodative monetary policy in an attempt to spur growth.
While the money market curve and the 3/5-year space has broadly followed suit, longer dated papers especially
corporate bonds have remained somewhat anchored. This has resulted in a steep yield curve
The corporate curve and long dated government bonds today trade at spreads of over 200 bps over comparable 3
year assets creating significant opportunities for long term investors looking to lock in rates. The opportunities on the
G-Sec & AAA Curves offer attractive risk reward opportunities along with a high degree of margin of safety. Medium
term guidance by the RBI on keeping rates status quo also offers opportunities for medium term investors to go up
the curve to capture this opportunity.

Hindsight is 20/20 4
 7.5 Bond Yields have fallen by upto 200 bps 3x10 year spreads remain at historic highs
250

6.5 200

150
5.5
100
4.5
50

3.5 0
Dec-19 Mar-20 Jun-20 Sep-20 Dec-20 Dec-17 Dec-18 Dec-19 Dec-20
-50
3 Year AAA PSU 5 Year AAA PSU Repo 3X10 Year Spread
Source: Bloomberg, Axis MF Research. Data as of 18th December 2020

Credits
Credits like equities have had a rollercoaster ride as covid struck just as credit markets were recovering from the
liquidity crunch of the previous downturn. Since then, markets have returned to normalcy largely on account of the
government’s action to reduce the risk quotient by offering large scale guarantees and accommodative risk
frameworks to facilitate industrial lending and efficient capital markets.
In the current low interest rate environment, credits offer investors the opportunity for materially higher carry.
Learnings from past mistakes have made investors more cognizant to risks of default and credit risk thus making such
products more transparent.

How to position yourself for 2021?

Equity Markets
The post pandemic recovery theme has played out well as markets saw renewed interest for domestic equities from
all market participants including FPI’s, and portfolio investors. Earnings have exceeded investor beaten down
expectations post pandemic and we believe markets are poised to remain positive sans Covid. Loose monetary policy
and positive current account balances are key positives for the economic recovery.
Finally, we are seeing the transmission of interest rates happening into various segments. If these trends persist, they
can possibly drive growth in various segment of economy such housing, investments etc. We have seen surprises in
company performance right from exports (IT, Pharma) to financials (Asset quality), to domestic consumption (Autos
etc). While we believe vaccines are on anvil and governments are chalking out large-scale inoculation drives, the risk
of a delay in vaccination persists.
Our portfolio stance has turned optimistic as we play the recovery theme through quality. The caveat however
remains that markets are volatile. This volatility is best served by staying invested rather than trying to time the
markets. The longer term outlook for equities continues to remain intact. Short term volatility can be used by
investors to top up their existing investments with a 3 to 5-year view.

Debt Markets
We anticipate RBI will withdraw accommodation and reduce liquidity in turn starting the process of rate
normalization. Unless we see a huge fiscal consolidation or downward growth/ inflation shock rate cuts looks
unlikely. For 2021, we believe investors will be best suited to go up the duration curve which would serve investor
needs of a higher risk reward. The RBI will move on rates hikes over the course of the next year, albeit slowly as they
would not like to jeopardize growth that is coming on the back of the ongoing recovery in the economy. We expect a
rising rate environment to ensue over the next twelve to eighteen months.

Hindsight is 20/20 5
For Investors, we see an attractive play for the reinvestment benefit that can be availed in the short bond and money
market segment reinvestments on maturity happen at higher rates in rising rate environment. Theirs is also a strong
steepness in the yield curve between 2-3 Year and 5-10+ Year segment. There is hence an opportunity to exploit this
steepness in the portfolios through targeted barbell strategies as this curve flattens.
There has been an uptick in the high frequency indicators and many positive sign visible on the macro front, this is a
positive for the broad economy and in turn credits. Short-term credits (up to 2 year) offer significant opportunities
for active strategies at this juncture. A mix of spread compression and attractive ‘carry’ makes exposure to this space
vital to debt portfolios amidst persistently low yields. A prudent mix of AA and AAA/G-Sec strategies may be
beneficial for investors looking at inflation-adjusted returns from a long-term investment horizon.
However, investors must remain vigilant and focus on portfolio granularity and liquidity while identifying investment
opportunities in this space. Investors looking for short term parking solutions should continue to move up the yield
curve to capture any capital gains as the curve normalizes.

Funds to watch out for in 2021

Equity Funds Fixed Income Funds Hybrid Funds

• Axis Bluechip Fund • Axis Dynamic Bond Fund • Axis Equity Hybrid Fund
• Axis Growth Opportunities Fund • Axis Strategic Bond Fund • Axis Triple Advanatage Fund
• Axis Smallcap Fund • Axis Corporate Bond Fund

Off the Beaten Road – An Ode to Bitcoin!

Bitcoin has been a star hedge for Covid even as gold and the US dollar have been unable to stave off the effects of the
covid downturn. As we end the year, Bitcoin trades at its highest levels ever (Above US$ 22,000 per coin)
Figure 10 Bitcoin has trumped gold as the new safe haven

The Spectaular Journey of Bitcoin

$25,000 $22,997

$18,674
$20,000

$15,000 $12,734

$10,000 $9,652

$5,000
$1,024 $690
$3 $4,904
$0 $3,157
Apr-10 Aug-11 Dec-12 Apr-14 Aug-15 Dec-16 Apr-18 Aug-19 Dec-20

Source: Bloomberg, Axis MF Research. Data as of 18th December 2020. Axis MF or AMC do not offer a view on bitcoin as an asset class nor do
they offer recommendations to trade/speculate on the asset.

Things to watch out for in the New Year

The Indian economic recovery, Tokyo Olympics and most importantly your COVID vaccine shot!

Hindsight is 20/20 6
Disclaimers & Product Labelling

Axis Bluechip Fund (An open ended equity scheme predominantly investing in large
cap stocks)
This product is suitable for investors who are seeking*
• Capital appreciation over long term
• Investment in a diversified portfolio predominantly consisting of equity and equity
related instruments of large cap companies

Axis Growth Opportunities Fund (An Open-ended Equity Scheme investing in both
large cap and mid cap stocks)
This product is suitable for investors who are seeking*
• capital appreciation over long term
• investment in a diversified portfolio predominantly consisting of equity and equity
related instruments both in India as well as overseas

Axis Small Cap Fund (An open-ended equity scheme predominantly investing in small
cap stocks)
This product is suitable for investors who are seeking* Riskometer
• Capital appreciation over long term Moderate Mo
tely de
era Hig rate
o d L ow h

ly
M
• Investment in a diversified portfolio predominantly equity and equity related
instruments of small cap companies

High
Low

LOW HIGH
Axis Equity Hybrid Fund (An open ended hybrid scheme investing predominantly in Investors understand that their
equity and equity related instruments) principal will be at Moderately high risk

This product is suitable for investors who are seeking*

• Capital appreciation along with generation of income over medium to long term
• Investment in equity and equity related instruments as well as debt and money
market instruments.

Axis Triple Advantage Fund (An open ended scheme investing in equity, debt and gold)
This product is suitable for investors who are seeking*
• Capital appreciation & generating income over long term.
• Investment in a diversified portfolio of equity and equity related instruments, fixed
income instruments & gold exchange traded funds.

* Investors should consult their financial advisers if in doubt about whether the product is suitable for them.

Hindsight is 20/20 7
Disclaimers & Product Labelling (Contd.)

Axis Dynamic Bond Fund (An open ended dynamic debt scheme investing across
duration)
This product is suitable for investors who are seeking*
• Optimal returns over medium to long term
• To generate stable returns while maintaining liquidity through active management
of a portfolio of debt and money market instruments.

RISKOMETER
Axis Strategic Bond Fund (An open ended medium term debt scheme investing in Moderate Mo
tely de
instruments such that the Macaulay duration of the portfolio is between 3 years to 4 era Hig rate
o d L ow h
years)

ly
M
This product is suitable for investors who are seeking*

High
Low
• Optimal returns over medium term
LOW HIGH
• Investment in diversified portfolio of debt and money market securities to generate
optimal risk adjusted returns while maintaining liquidity Investors understand that their
principal will be at Moderate risk

Axis Corporate Debt Fund (An open ended debt scheme predominantly investing in
AA+ and above rated corporate bonds)
This product is suitable for investors who are seeking*
• Regular income over short to medium term
• Predominantly investing in corporate debt.

* Investors should consult their financial advisers if in doubt about whether the product is suitable for them.

Disclaimer
Document dated 18th December 2020.
This document represents the views of Axis Asset Management Co. Ltd. and must not be taken as the basis for an investment
decision. Neither Axis Mutual Fund, Axis Mutual Fund Trustee Limited nor Axis Asset Management Company Limited, its
Directors or associates shall be liable for any damages including lost revenue or lost profits that may arise from the use of the
information contained herein. No representation or warranty is made as to the accuracy, completeness or fairness of the
information and opinions contained herein. The material is prepared for general communication and should not be treated as
research report. The data used in this material is obtained by Axis AMC from the sources which it considers reliable.
While utmost care has been exercised while preparing this document, Axis AMC does not warrant the completeness or accuracy
of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Investors are
requested to consult their financial, tax and other advisors before taking any investment decision(s). The AMC reserves the
right to make modifications and alterations to this statement as may be required from time to time.
Axis Mutual Fund has been established as a Trust under the Indian Trusts Act, 1882, sponsored by Axis Bank Ltd. (liability
restricted to ` 1 Lakh). Trustee: Axis Mutual Fund Trustee Ltd. Investment Manager: Axis Asset Management Co. Ltd. (the
AMC) Risk Factors: Axis Bank Limited is not liable or responsible for any loss or shortfall resulting from the operation of the
scheme.

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.

Hindsight is 20/20 8