Multi Asset Strategy August 2021

Multi Asset Strategy August 2021

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RISK CALIBRATION OVER MARKET TIMING

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Multi Asset Strategy
RISK CALIBRATION OVER MARKET TIMING
Covid-19 Update: 50 Cr Vaccination doses administered in various phases - India has
successfully contained the rapid spread of the second Covid-19 wave in May/Jun’21. This has
been possible due to localized and regional lockdowns proactively induced by the state
governments. Moderation in the Covid-19 curve continued in Jul’21 with recovery outpacing the
new case rate. Sharper improvement was seen in the daily new cases which stood reduced at
41k/day in the last week of Jul’21 vs. 4 Lc/day during the first week of May’21. As we study the
Covid-19 curve, faster vaccination is the only permanent solution for swift economic
recovery. In our opinion, vaccinating a significant part of the population will take ~4-5
months.
High-Frequency Indicators improving sequentially - The economic activities continued post
normalization in Jul’21 with a sequential recovery seen in the E-way bills, electricity generations,
and PMI manufacturing as well as in Google mobility data. At the India level, time stayed at home
has rebounded to Mar’21 levels. While both Retail and Workplace activities have improved
significantly MoM, the recovery pace has been faster for the retail segment vis-a-vis workplace
segment. Significant improvement is seen in the E-way bills in Jul’21, highest in 4 months and
also the healthy demand recovery is witnessed in energy consumption, up 11% in July’21 YoY.
PMI recovered in Jul’21 as the lockdown eased up and stood at a three-month high. Furthermore,
factory orders rose in July’21 with an improvement in the demand while the uptick in total order
book was further supported by the international demand pick-up. Though Consumer services
were badly impacted during May/Jun’21, the PMI Services is seen recovered in Jul’21 but still
below the Mar’21 levels. An uptick in Aug’21 remains to be seen with the normalization of the
economy.
Equities - Healthy Performance Once Again; Sustainability is the Key: July month witnessed
trends similar to those in the prior months with NIFTY showcasing limited returns while the
broader market continued to outperform. Nonetheless, in a significant move, the benchmark
NIFTY index hit a new high during the month with the July high being 4% higher than the high
recorded on February 15th, 2021. The sectors that delivered excellent returns during the month
were Real Estate (+16%), Metals (+10%), and IT (+5%). Other sectors, however, were a mixed
bag. We continue to foresee the broader market doing well but the focus is shifting towards
sustainability of the returns. And hence, we believe the returns from the current levels will be
more calibrated and focus on quality and value will yield more sustainable returns, going forward.
Q1FY22 earnings to date can be considered a mixed bag with a few positive surprises as well as
significant earnings miss. Overall, the quarter results have seen a mixed response but the trend
continues to be constructive and earnings visibility continues to remain good. Mid Cap, Small
Cap, and Large Cap Value are to remain key allocation themes, while Quality is coming back in
focus. We maintain our Dec’21 NIFTY target of 17400 (22x FY23E earning). Overall, we
remain constructive on the market and believe that the dips should be utilized to build
positions in the above-mentioned themes.
NeerajChadawar |neeraj.chadawar@axissecurities.in |
August 2021
Fixed Income: Bond yields drifted higher during the month due to the rise in crude prices and
delay in the announcement of bond purchase via G-SAP 2.0. Yields were largely range-bound in
the second half as the market participants awaited the RBI’s stance on liquidity management
given the mild to moderate growth conditions and stronger inflationary forces. In Aug’21 MPC, the
RBI maintained its status-quo on the policy stance, keeping the repo rate unchanged and
continuing with the accommodative stance. In line with expectations, the FY22 GDP forecast was
retained at 9.5%. However, the RBI has raised the FY22 CPI estimate to 5.7% vs 5.2% earlier.
The RBI further indicated that the high inflation is due to adverse supply chains and will get
resolved as the economy normalizes. We believe the yield curve to remain steep given the ample
liquidity in the system towards the lower end of the yield curve while the longer end of the yield
curve remains cautious due to the risk of inflation and the policy normalization. Given the high
uncertainty over the interest rate trajectory, it would be prudent for the investors to be
conservation. In conclusion, we continue to favor a Quality approach in bonds with some
non-AAA exposure based on individual risk appetite.
Gold: Overall investor sentiments have improved over the last few months with investors now
betting higher on riskier assets such as Equity. Sentiments have been improving further due to
rising optimism is driven by vaccine development and faster-than-expected economic recovery in
the global markets. All these developments are keeping the gold prices under pressure which
corrected by 4%/7% in INR/USD terms in June on account of a more hawkish stance by the US
FED. However, they recovered by 2% in July on account of softness in the US 10-year bond
yields. Nonetheless, gold prices continue to face a challenge with further strengthening of the
dollar. Rising inflation expectation and improved economic outlook with a pick-up in vaccination
for the H2-2021 and view on central banks tapering are the headwinds in the near term which will
limit the gold prices. However, gold will continue to be a preferred asset class till uncertainties
over the economic recovery remain and will continue to attract investments as a hedge against
other asset classes. We continue our Neutral stance on Gold and recommend a ‘Buy-on-
Dips’ strategy.
Currency: The Indian currency remained volatile for July on account of the stronger dollar during
the month led by the more hawkish stance by the US FED. The currency was broadly steady in
the first week of June post which the momentum started building for stronger USD on account of
improved macroeconomic data. However, IPO-related flows and the more dovish stance by the
US fed kept the USD strengthening range-bound in the second half of the month. Since Jan’20,
the Indian currency has performed well and it has been stable vs. other Emerging market
currencies of Brazil, Russia, and Mexico. This was on account of India’s higher foreign exchange
reserves (now at an all-time high level) and stable outlook. The key events that will decide the
direction of the currency market are 1) Recovery rate after unlocking of the economy, 2)
Trajectory of the US growth as expectation has risen in recent months on account of faster
vaccination roll-out and passing of most anticipated fiscal stimulus of $1.9 Tn, 3) Further
direction of the bond yields as investors are betting on the US inflation which may pick up
early due to the economic recovery driven by fiscal stimulus and accelerated pick-up in
the vaccination program.
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Multi Asset Strategy August 2021

Target asset allocation

Our take:

Equity: Overweight: Healthy Performance Once Again; Sustainability is the Key!

Debt: Neutral

Gold: Neutral

Target Portfolio allocation (%)

Asset Risk Averse Conservative Balanced Growth Aggressive

Equity 0% 20% 50% 70% 90%

Debt 70% 70% 35% 15% 5%

Gold 30% 10% 15% 15% 5%

Total 100% 100% 100% 100% 100%

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Multi Asset Strategy August 2021

Performance of Asset Classes: Mid and Small Caps stole the show in the first seven months of 2021
While the leadership in asset classes keeps on changing in different market cycles, Gold proved to be one of the best performing asset classes in 2020. In the
last 10 years, Nifty outperformed the Emerging market in the 5 years and developed the market in the 4 years. NIFTY 50 delivered a healthy 15% return in
2020 which was significantly better than the 12% return it delivered in 2019. The performance of Small Caps stood highly volatile vs. other asset classes. While
it ranked at the bottom in 2018 and 2019, it recovered sharply in 2020, outperforming other asset classes in the first seven months of 2021. While NIFTY Mid
Cap 100/Nifty Small Cap 100 delivered 22%/21% returns respectively in 2020, the returns for Mid and Small Cap indices were negative in 2019. We expect a
broad-based rally of 2020 to continue well into 2021 (which is already visible in the first seven months) with a strong earnings revival across the board. A lower
interest rate environment and higher fiscal spending will continue to support the equity markets. FY22 Union Budget turned out to be an encouragingly positive
budget with an unrelenting focus on growth through capital spending. It has been a significant event as it is changing the market structure in favor of the Capex
cycle and the BFSI plays. The laggards of the last decade are witnessing more traction and may see increased allocation in the forthcoming quarters.
Asset allocation and sector rotation will be keys to generate outperformance in 2021. An equity market is likely to be the best
performing asset class for the next 1-2 years. Though in light of significant short-term challenges posed by the second wave, Q1FY22
results have seen a mixed response, the trend is still constructive and earnings visibility continues to remain good.

Yearly performance of Asset Classes (%)

Rank 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Jan-Jul’21

MCX Gold: Midcap: S&P 500: Midcap: Crisil comp Crisil comp SmallCap: MCX Gold: S&P 500: MCX Gold: SmallCap:
1
32% 39% 30% 56% Bond: 9% Bond: 13% 57% 8% 29% 28% 48%
Crisil comp SmallCap: SmallCap: SmallCap: EM Index: Crisil comp MCX Gold:
2 Nifty 50: 7% Midcap: 47% Midcap: 22% Midcap: 33%
Bond: 7% 37% 55% 7% 10% Bond: 6% 25%
S&P 500: Crisil comp MCX Gold: EM Index: EM Index: SmallCap: S&P 500:
3 Nifty 50: 28% Nifty 50: 31% Midcap: 6% Nifty 50: 3%
0% Bond: 4% 10% 29% 17% 21% 17%
EM Index: EM Index: Midcap: Crisil comp S&P 500: - S&P 500: S&P 500: - S&P 500:
4 Nifty 50: 29% Nifty 50: 12% Nifty 50: 13%
-21% 14% -5% Bond: 14% 1% 10% 6% 16%
Nifty 50: S&P 500: EM Index: S&P 500: S&P 500: Midcap: Crisil comp EM Index:
5 Nifty 50: -4% Midcap: 7% Nifty 50: 15%
-25% 13% -6% 11% 19% -15% Bond: 11% 0%
Midcap: MCX Gold: MCX Gold: EM Index: MCX Gold: MCX Gold: EM Index: EM Index: Crisil comp
6 Nifty 50: 3% Midcap: -4%
-31% 12% -8% -1% -7% 6% -16% 13% Bond: 1%
SmallCap: Crisil comp SmallCap: MCX Gold: EM Index: SmallCap: Crisil comp SmallCap: SmallCap: Crisil comp MCX Gold:
7
-34% Bond: 9% -8% -6% -18% 2% Bond: 5% -29% -10% Bond: 12% -5%
Source: Bloomberg, Axis Securities, Note: Midcap is NSE midcap 100, Smallcap is NSE smallcap100 index, EM is FTSE EM index

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Multi Asset Strategy August 2021

Covid-19 update: 50cr Vaccination doses administered in various phases

India has been able to arrest the rapid spread of the second wave in May/Jun’21, thanks to localized and regional lockdown proactively induced by the state
governments. Moderation in the Covid-19 curve continued well in July’21 with recovery outpacing the new case rate. The daily new cases number fell below
Sep’21 peak which is an encouraging sign and stood reduced at 41k/day in the last week of Jul’21 vs. 4 Lc/day during the first week of May’21. Daily active
cases peaked at 37 Lc on 9th May which has now significantly reduced to 4.1 Lc active cases in the last week of Jul’21, indicating a sharper recovery rate. As
of 8th August, 50 Cr vaccine doses have already been administered in various phases with the vaccination drive picking up in Jul’21 vs. vaccine shortages in
May’21. The average daily vaccination in the last one week has been more than 50Lc/day.
As we study the Covid-19 curve, complete vaccination is the only permanent solution for faster economic recovery. In our opinion, vaccinating a
significant part of the population will take ~4-5 months.

Source: Covid19India, JohnHopkins, Axis Securities

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Multi Asset Strategy August 2021

Google Mobility Report: Sequential recovery in mobility data

Sequential recovery was seen in Google mobility data post localized relaxations. Time stayed at home fell significantly in Jul’21 and at India level, it has
rebounded to Mar’21 level. The activity level at groceries and pharmacy outlets, too, has revived to the baseline after a restriction-led decline seen in July’21.
Both Retail and Workplace activities have improved significantly on an MoM basis though the pace of recovery has been faster in the retail segment vs that I in
the Workplace activities. Activities at retail and recreation are now at Mar’21 levels while it stands slightly below Mar’21 levels for the workplace.

Source: Google mobility report, Axis Securities

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Multi Asset Strategy August 2021

Energy demand is back to the Mar’21 levels

Economic activities started normalizing in Jul’21 with a sequential recovery seen in electricity generations and E-way bills (significant improvement and highest
in the last 4 months). Healthy demand recovery is witnessed in energy consumption as well which was up 11% in July’21 on a YoY basis. Absolute energy
consumption for Jul’21 has touched Mar’21 levels, signifying a strong pick-up in the economic activities after the second wave.
Petrol demand has picked up in Jun’21 while the diesel demand remained muted due to higher fuel prices. However, petrol demand is exhibiting a
YoY growth due to the low base in the last year.

Source: Bloomberg, GSTN, POSOCO, PPAC, Axis Securities

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Multi Asset Strategy August 2021

High-Frequency Indicators: Rebound in manufacturing PMI

Manufacturing PMI recovered in Jul’21 and stood at three months high as the lockdowns eased up. Factory orders rose in July’21 with an improvement in
demand while an uptick in the total order book is further supported by a pick-up in international demand. Consumer services were badly impacted during
May/Jun’21. However, PMI services are being recovered in Jul’21 but still below the Mar’21 levels. An uptick in Aug’21 post economy normalization remains to
be seen. GST collection also stood at 1.16 Lc Cr, signifying encouraging economic recovery. Demand recovery sustained in Jul’21 for Automobile numbers
with healthy PV demand but sluggish 2W demand. Automotive monthly sales continued recovering strongly in July’21, driven by pent-up demand as well as the
low base in the last year. However, auto sales numbers are not yet comparable on Yoy or MoM basis and hence the comparison is undertaken for reference
purposes only.

Macro Month Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21 Apr-21 May-21 Jun-21 Jul-21
Forex reserves ($ Bn) Jul-21 541.4 542.0 560.7 574.8 580.8 590.2 584.6 579.3 588.0 598.2 609.0 611.1
FDI ($ Mn) May-21 18371 3257 5075 6840 7334 3859 -1093 2731 4675 10529
Exports (YoY%) Jun-21 -12.7% 6.0% -5.1% -8.7% 0.1% 6.2% 0.7% 60.3% 195.7% 69.4% 48.3%
Imports ($ YoY%) Jun-21 -26.0% -19.6% -11.5% -13.3% 7.6% 2.0% 7.0% 53.7% 167.1% 73.6% 98.3%
IIP YoY% May-21 -7.1% 1.0% 4.5% -1.6% 2.2% -0.6% -3.2% 24.2% 134.6% 29.3%
CPI YoY% Jun-21 6.7% 7.3% 7.6% 6.9% 4.6% 4.1% 5.0% 5.5% 4.2% 6.3% 6.3%
WPI YoY% Jun-21 0.4% 1.3% 1.3% 2.3% 2.0% 2.5% 4.8% 7.9% 10.7% 12.9% 12.1%
PMI Manufacturing Jul-21 52 56.8 58.9 56.3 56.4 57.7 57.5 55.4 55.5 50.8 48.1 55.3
PMI Services Jul-21 41.8 49.8 54.1 53.7 52.3 52.8 55.3 54.6 54 46.4 41.2 45.4
Industry
Cement Production YoY% Jun-21 -14.5% -3.4% 3.2% -7.3% -7.2% -5.8% 0.2% 40.6% 582.7% 8.3% 4.3%
Steel Production YoY% Jun-21 0.5% 6.2% 5.9% 0.7% 3.5% 8.2% 2.2% 31.5% 472.7% 55.3% 25.1%
Electricity Gen YoY% Jun-21 -1.8% 4.8% 11.2% 3.5% 5.1% 5.5% 0.2% 22.5% 38.5% 7.5% 7.2%
Coal Generation YoY% Jun-21 -5.7% -5.7% 11.8% 3.3% 2.2% -1.9% -4.4% 0.3% 9.5% 7.0% 7.4%
Eight Core Industries YoY% Jun-21 -9.6% -9.6% -0.5% -1.1% 0.4% 1.3% -3.3% 12.6% 60.9% 16.3% 8.9%
GST Collection (Rs Cr) Jun-21 86,449 95,480 105,155 104,963 115,174 119,847 113,000 123,902 141,384 102,709 116,393
Tractor Sales YoY% Jul-21 64.8% 26.7% 9.0% 48.3% 41.2% 47.5% 30.4% 170.4% 480.8% -2.4% 22.1% -55%#
Domestic Air Pass YoY % Jun-21 -76.0% -65.8% -57.2% -50.9% -43.7% -39.5% -36.9% 0.7% 647.3% 57.8%
Passenger Vehicles YoY % Jul-21 14.2% 26.5% 19.9% 8.5% 27.6% 5.5% 22.9% 124.2% NC 207.6% 147.8% 48.9%
2 Wheeler's YoY % Jul-21 3.0% 12.9% 12.6% 5.0% 29.5% 6.6% 5.4% 75.6% NC 18.3% 2.7% -5.1%
Naukri Job Speak Index YoY% Jun-21 -34.7% -23.0% -17.0% -28.0% -10.2% -19.2% -2.4% 24.7% 117.9% 124.9% 95.3%
Source: Bloomberg, RBI, MOSPI, * Provisional numbers, Axis Securities, *NC: Not comparable due to zero-base of last year due to the lockdown, #numbers only of Escorts & Mahindra

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Multi Asset Strategy August 2021

High-Frequency Indicators: Sequential improvement

 Q4FY21 GDP grew at 1.6% YoY, higher than street expectation, indicating economic momentum strengthening in the quarter. With this expectation beat, FY21 GDP is
now closed at -7.3%, far better than anticipated during the first phase of the pandemic. On expected lines, the RBI cut the FY22 GDP estimates by 100bps to 9.5% in
the recent monetary policy on account of a pause in economic momentum in Q1FY22 led by localized lockdowns and a sharp surge in COVID 2.0.
 April IIP has surged by 29% vs 135% in the last month (due to a lower base), modest impact of the second wave was visible in the May IIP number. Going forward, the
Jun’21 numbers are likely to be subdued due to the localized lockdown during the month. However, restrictions were eased sequentially.
 June CPI was flat at 6.3% vs. 4.2% in Apr’21. This higher CPI number was led by a mix of global commodity prices and local supply-side disruptions. With vaccination
progress normalizing supply conditions around the world, there stands a significant potential for oil commodities supply to improve.

Credit growth, which was sluggish for the last few months, was expected to pick up as the entire system was flushed with liquidity and the Union Budget had
turned in favor of more capital spending and growth. However, the BFSI sector will bear the brunt of the second wave and will continue to operate in a challenging
environment.

RBI Data Month Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21 Apr-21 May-21 Jun-21 Jul-21
Deposit Growth YoY% Jul-21 10.9% 10.5% 10.1% 10.9% 11.3% 11.1% 12.1% 11.4% 10.3% 9.7% 10.3% 9.6%
Credit Growth (YoY%)
Non Food Credit Jun-21 6.0% 5.8% 5.6% 6.0% 5.9% 5.7% 6.5% 5.5% 5.7% 5.9% 5.9%
Agri& Allied Activity Jun-21 4.9% 5.9% 7.4% 8.5% 9.4% 9.9% 10.2% 12.3% 11.3% 10.3% 11.4%
Industry Jun-21 0.5% 0.0% -1.7% -0.7% -1.2% -1.3% -0.2% 0.4% 0.4% 0.8% -0.3%
Services Jun-21 8.6% 9.1% 9.5% 8.8% 8.8% 8.4% 9.3% 1.4% 1.2% 1.9% 2.9%
Pesonal Loan (Retail) Jun-21 10.6% 9.2% 9.3% 10.0% 9.5% 9.1% 9.6% 10.2% 12.6% 12.4% 11.9%

Source: Bloomberg, RBI, MOSPI, Axis Securities

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Multi Asset Strategy August 2021

Equity: Q1FY22 Earnings Commentary Critical; Long-Term Constructive Trends Remain Intact
Nifty Events Update: Volatile month; trend constructive
 The Indian equity market touched an all-time high of 15924 on 15th July, up 4% from the previous high on 15th Feb. Delta variant of Covid-19 has kept the
markets volatile but the overall trend remains constructive. It is further supported by a positive revision in revenue guidance by the major IT players.
 The volatility index continues its downward trajectory. Currently, VIX is trading below 13 level vs. the long-term average of 22, indicating a positive setup for
the market with limited downside. If VIX continues to head southward, it will trigger a further rally in the broader market as we are witnessing for the last 2-3
months.
 The vaccination drive has further picked up in Jul’21 vs. vaccine shortages in May’21. In our opinion, vaccinating a significant part of the population will take
~4 to 5 months.

Source: Bloomberg, NSE, Axis Securities

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Multi Asset Strategy August 2021

What Happened Since 15th Feb – Small Caps steals the show!
 The equity market scaled to a record high of 15924 on 15th July, up 4% from the previous high of 15314 on 15th Feb. Though the benchmark index scales
a new high, the broader market has outperformed the Large Cap universe (top 50 stocks) by a significant margin during the same period. The stocks
ranking from 201-500 rallied 32% since 15th Feb while Top 50 stocks were up by only 4% over the same period.
 As anticipated, the market positioning has slowly shifted towards Defensive and Selective Cyclical plays that have outperformed the Sensitive sectors' play
since 15th Feb. The BFSI and Auto sectors have been the laggards in the current rally primarily due to challenges posed by COVID 2.0. However, barring
Q1FY22, the outlook for these remains positive as the emergence of visibility in sectors may provide significant alpha moving forward.
 The discretionary sector is outperforming on account of an improved outlook.

Source: Bloomberg, Axis Securities

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Multi Asset Strategy August 2021

What Happened Since 15th Feb: Nifty Recovered and is Trading 4% Above its Previous High!
 Since 15th Feb, a broader market rally was visible across the sectors. Even as the benchmark index has already crossed the previous high for the same
period, 82% (410) companies out of the Top 500 companies had given a positive return since 15 th Feb. Almost 90 companies have been corrected and given a
negative return from the Nifty top level.
 88 companies rallied more than 50%, of which 65 are Small Caps and 17 are Mid Caps.
 Most of the correction was visible in the NBFC, Auto, Discretionary, and Telecom space while positive momentum continued in the IT, Healthcare, Pharma,
Agri, and Metal space. More than 90% of the PSU universe is up from the 15 th Feb levels.

Showcasing no of stocks for different price returns from 15 Feb, 21 to 30 Jul, 21 for top 500 companies
Sector No of Stocks >0%<20% >20%<50% >50% <0%
Agri & Chem 35 6 18 10 1
Auto & Anc 34 9 9 0 16
Banks 28 8 3 3 14
Build Mate 34 20 6 5 2
Discretionary 46 19 15 4 8
Healthcare 46 16 18 5 6
Industrials 47 19 16 8 4
IT 23 3 7 11 2
Metals & min 21 5 3 13 0
NBFC 56 19 14 7 16
Oil & gas 13 8 3 0 1
Others 51 10 20 14 7
Staples 27 12 9 3 3
Tele & Media 16 5 2 1 8
Transport 11 4 4 2 1
Utilities 12 4 5 2 1
Total 500 167 152 88 90
Large Cap 100 44 22 6 28
Mid Cap 150 55 49 17 26
Small Cap 250 68 81 65 36
PSUs 55 25 12 12 6
Source: Bloomberg, Axis Securities

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Multi Asset Strategy August 2021

India Valuation Index: Retracing Back To Cautious Zone after a Recent Run-Up but Earnings Upgrades More Critical
Our Market valuation index has retraced back to the cautions zone after the recent run-up (earlier seen in 2018). Current levels indicate some profit booking in
the market (especially in the Large Caps). At the current levels, Stock picking and Sector Rotation remain keys to achieve outperformance.
(The calculation of the India Valuation Index is based on four fundamental market parameters (12m fwd PE, 12m fwd PB, Bond Equity Earnings Yield Ratio,
and Mcap to GDP Ratio)).

.
Source: Bloomberg, Axis Securities

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Multi Asset Strategy August 2021

Two Fundamental Ratios Are Trading Slightly Above Their LTA after A Recent Run Up!
BEER: With a recent rollover of earnings, the BEER ratio is trading slightly above its LTA, indicating the stock market is slightly expensive at the current level
as against the bond market.
India’s total market cap to GDP is trading at 118%; above its long-term average. The current Mcap is 12%/22% above the 15th Feb/1st Jan levels, indicating a
broader market rally.
Historically, similar upward earning momentum was seen for FY10 earnings immediately after the GFC crisis, which took a market cap to GDP to the range of
95-98%. With this positive earnings momentum in the current cycle, it is likely to see higher levels of Mcap to GDP in the upcoming quarters.

Nifty 12m Fwd PE Nifty 12m Fwd PB

Source: Bloomberg, Axis Securities

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Multi Asset Strategy August 2021

Mid Caps look attractive: Mid Caps trading at only 2% premium to large caps
 From a valuation perspective, Mid Caps look more attractive against Large Caps. Historically, Mid Caps traded at a 45% premium to Large Caps during the
2017 bull phase. The recent spate of IPOs and their success clearly indicate the appetite for Mid and Small Cap stocks. The stellar listing of Zomato IPO also
signifies the euphoria among the investors and the strong risk appetite for novel and next-generation business models.
 Since Nov’21, Small and Mid Caps are picking up steam and are expected to deliver robust returns in 2021 as the economic uncertainties and volatility
decline.

Source: Bloomberg, Axis Securities

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Multi Asset Strategy August 2021

DIIs turns net buyers in the last one month

FIIs pulled out US$ 3.3 Bn and DII have added US$ 4.5 Bn in the last one month. Since Jan’20, FIIs have bought a massive amount of US$ 30.5 Bn while the DIIs
have sold US$ 0.2 Bn from the Indian equity market. The highest-ever FII inflows were seen in the FY21 at US$ 37 Bn, which stands higher than FY10/FY11/FY13
levels.

Source: Bloomberg, Axis Securities

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Multi Asset Strategy August 2021

Equity: Healthy Performance Once Again; Sustainability is the Key!

Our take
 Q1FY22 earnings a mixed bag
 Volatility continues to reduce, indicating the continuance of a strong bull market
 Mid Cap, Small Cap, and Large Cap Value to remain key allocation themes; Quality coming back in focus
 Maintain December NIFTY target to 17400

Sector View
Sectors Current View

Automobile Equal Weight

BFSI Equal Weight Our Key Themes: Mid Cap, Small Cap, and Large Cap Value will remain key allocation

Capital Goods Equal Weight themes

Cement Equal Weight Our Top Picks: ICICI Bank, SBI, Federal Bank, Equitas Small Finance Bank, Varun Beverages,
Camlin Fine Sciences, Mold-Tek Packaging, Amber Enterprises India, Minda Corporation, Steel Strips
Cons Staples Equal Weight Wheels, Lupin, Tech Mahindra, Bharti Airtel, HCL Technologies, Orient Cement, Ashok Leyland

Cons Disc Equal Weight

For detailed Note:Clickhere
IT Overweight

Metals & Mining Overweight

Oil & gas Equal Weight

Pharma Equal Weight

Real Estate Equal Weight

Sp Chemicals Overweight

Telecom Overweight

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Multi Asset Strategy August 2021

Fixed Income: Neutral

The slope of the yield curve has been the steepest in recent months. The difference between shorter and longer (3m, 10 year) bond yield is now at 280bps which was 130 bps during
pre-Covid times. Bond yields drifted higher during the month due to the rise in crude prices and the delay in the announcement of bond purchase via G-SAP 2.0. Yields were largely
range-bound in the second half as market participants await the RBI’s stance on liquidity management in light of mild to moderate growth conditions and stronger inflationary forces.
In August MPC, the RBI maintained its status-quo on the policy stance, keeping the repo rate unchanged and continuing with the accommodative stance. In line with expectations, it
retained the FY22 GDP forecast at 9.5%. However, it has raised the FY22 CPI estimate at 5.7% vs. 5.2% earlier. The RBI further believes that high inflation is due to adverse supply
chains and will get resolve when the economy normalizes. It rightly deferred a change in policy stance in August MPS. We believe the right timing of the first rate hike will only be after
the confidence that the vaccination provides adequate protection.

We believe the yield curve to remain steep given ample liquidity in the system towards the lower end of the yield curve while the longer end of the yield curve remains
cautious due to the risk of inflation and the policy normalization.

Since the last few months, the primary activity is gradually picking up with credit spreads easing, especially in the AAA category. While these attractive investment opportunities are
emerging in selected non-AAA-rated bonds, their spread with AAA-rated bonds continues to remain at elevated levels vs. the historical average. This suggests risk aversion is still in
place. Going forward, an improvement in the growth outlook and ample liquidity may lead to broad-based moderation in credit spreads. Given the high uncertainty over the interest
rate trajectory, it would be prudent for the investors to be conservative. With this backdrop, we continue to favor a Quality approach in bonds with some non-AAA exposure
based on individual risk appetite.

India Yield Curve Bond yields are trading at 220 bps above the repo rate

Source: Bloomberg, Axis Securities, Data up to 30th July

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Multi Asset Strategy August 2021

Gold: Neutral
Gold continues to be a preferred asset class for 2021
In 2020, Gold emerged as a promising asset class during uncertain times and performed strongly. As the flight-for-safety theme gathered traction, gold investment has outperformed all major
asset classes. This rally was further supported by the low-interest rates environment and a huge amount of liquidity infusion in the economy. In 2020, Gold has given 28% returns in INR terms
and 25% returns in US$ terms. However, gold prices were in corrective mode since Nov’21 till Mar’21 on account of 1) ‘Risk on’ trade in the global market, 2) Equity Market hitting an all-time high,
3) More risk appetite towards risker assets especially the emerging market, and 4) Positive development on the vaccine.

Investor’s overall sentiment has improved in the last few months with higher betting on riskier assets such as Equity. The positive sentiment is further stoked by optimism on the vaccine
development and faster-than-expected economic recovery. All these developments are keeping the gold prices under pressure and gold stood the biggest underperformer for the first seven
months of 2021 vs. other asset classes as its prices declined by 5% in INR terms over the same period.

Gold prices corrected by 4%/7% in INR/USD terms in Jun’21 on account of a more hawkish stance by the US FED. However, gold prices recovered 2% in July on account of softness in the US
10-year bond yields by 25bps. Gold prices continue to face challenges with further strengthening of the dollar.

Rising inflation expectation and improved economic outlook with a pick-up in vaccination for the second half of 2021 and view on central banks tapering are the headwinds in the near term which
will limit the gold prices. However, gold will continue to be a preferred asset class till the time the uncertainty over the economic recovery completely fades and it will continue to attract
investments as proven hedging against other asset classes. We continue our Neutral stance on Gold and recommend a ‘Buy-on-Dips’ strategy.

Why continue to remain invested in Gold

 Low yield: Low yields are the driving force for the Gold rally and with the central banks keeping the interest rates lower, it will continue to attract investments
 Liquidity infusion is likely to continue in 2021; a passage of the US stimulus will be a key for a further rally in gold
 In the longer run, a consensus is expecting a weaker dollar which is positive for Gold
 Gold is the best anti-Inflation asset

Gold vs US 10 year bond yield Gold Pricesperformance

% Returns of Gold vs Dollar
MCX gold prices Gold prices
USDINR
(INR/10gm) ($/OZ), rhs
Dec-20 4% 6% -1%
Jan-21 -2% -3% 0%
Feb-21 -7% -6% 1%
Mar-21 -2% -2% 0%
Apr-21 5% 4% 1%
May-21 4% 8% -2%
Jun-21 -4% -7% 2%
Jul-21 2% 2% 0%
2020 28% 25% 2%

Source: Bloomberg, Axis Securities

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Multi Asset Strategy August 2021

Currency
The Indian currency remained volatile for July on account of the stronger dollar during the month led by the more hawkish stance by the US FED. Currency was broadly steady in the
first week of June then momentum started building for stronger USD during the month on account of improved macroeconomic data. In the second half due to IPO-related flows and the
more dovish stance by the US fed had kept the USD strengthening range bound.
Since Jan’20, the Indian currency has performed well and it has been stable vs. the other Emerging market currencies of Brazil, Russia, and Mexico. This was on account of a higher
foreign exchange reserve and stable outlook, India’s foreign exchange reserve is now at an all-time high level. Downward pressure was seen in the currency market in April due to
rising concerns over the second wave has got reversed in May month led by an improvement in the Covid curve. However, 3% of the INR gained was reversed in June after the FOMC
meeting. DAX index has depreciated by 10% since Mar-2020, almost flat in July’21.
While going forward, the key events that will decide the direction of the currency market 1) Rate of recovery after unlocking of the economy, 2) Trajectory of US growth as
expectation has risen in recent months on account of faster vaccination roll-out and passing of most anticipated fiscal stimulus of USD 1.9 trillion, 3) Further direction of the bond yields
as investors are betting on US inflation which may pick up early due to an economic recovery driven by fiscal stimulus and accelerated pick up in the vaccination program.

Major Emerging market currency depreciation vs USD since Jan’20 Major Developed market currency appreciation vs USD since Jan’20

Source: Bloomberg, Axis Securities

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Multi Asset Strategy August 2021

Asset Allocation: Key for long term wealth creation

Top performer
 Equity: 8 years  Assets diversification is a  Returns of Asset classes vary in different cycles. Asset
 Gold: 6 years key to maximize returns allocation is a key to reduce risk and maximize returns
 Debt: 3 years

Calendar year returns (%) Portfolio return rank Portfolio return >
Year Equity Gold Debt FD Portfolio among asset classes Equity Return
2004 6.9% 0.8% -0.4% 5.5% 3% 3  7/17 years Portfolio
2005 36.3% 21.1% 4.8% 5.5% 20% 3 returns are greater
2006 39.8% 21.3% 4.0% 7.5% 21% 3 than Equity returns
2007 54.8% 14.4% 6.9% 8.3% 27% 2
2008 -51.8% 28.6% 9.1% 9.5% -12% 4 YES  7/17 years Portfolio
2009 75.8% 22.4% 3.5% 6.0% 35% 2 returns is on second
2010 17.9% 24.2% 5.0% 7.8% 13% 3 rank
2011 -24.6% 31.8% 6.9% 9.3% -2% 4 YES
2012 27.7% 12.9% 9.4% 9.0% 17% 2
2013 6.8% -7.9% 3.8% 9.0% 3% 4
2014 31.4% -6.0% 14.3% 8.5% 18% 2
2015 -4.1% -6.6% 8.6% 7.8% 1% 3 YES
2016 3.0% 10.1% 12.9% 6.9% 8% 3 YES
2017 28.6% 6.2% 4.7% 6.8% 15% 2
2018 3.2% 7.7% 5.9% 6.7% 5% 4 YES
2019 12.0% 24.6% 10.7% 6.7% 13% 2 YES
2020 14.9% 28.2% 12.3% 5.1% 15% 2 YES

Note: Equity represents Nifty index, Gold is MCX gold spot prices, Debt is Crisil Composite Debt Index, FD is SBI Fixed deposit rates
(1yr to 2yr). Portfolio is made up of Equity (40%), Debt (40%), Gold (15%), FD (5%)

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Multi Asset Strategy August 2021

Asset performance: During different market events

Returns of different asset classes vary during different market events and with the right asset allocation, one can manage downside risk. For all
correction events in the equity market, Multi-asset portfolio returns are better than equity returns.

Calendar year returns (%) Equity Market phase Portfolio return >
Year Equity Gold Debt FD Portfolio Correction/Rally/Neutral Equity Return
Event1 -59.1% 38.2% 7.8% 6.0% -14% Correction YES
Event2 144.9% 34.2% 8.6% 7.8% 67% Rally
Event3 -19.3% 36.7% 8.6% 9.0% 2% Correction YES
Event4 7.6% 17.6% 8.3% 9.0% 9% Neutral YES
Event5 55.2% -20.6% 11.0% 8.5% 24% Rally
Event6 29.9% 14.9% 8.2% 6.8% 18% Rally
Event7 -8.3% 1.3% 1.4% 6.7% -2% Correction YES
Event8 -38.0% 4.8% 0.5% 6.7% -14% Correction YES
Event9 45.5% 30.8% 8.6% 5.1% 27% Rally

Period Event Equity Reaction

Event1 Jan-08 to Mar-09 GFC correction Correction
Event2 Mar-09 to Nov-10 Post GFC rally Rally
Event3 Nov-10 to Jan-12 Euro zone crisis Correction
Event4 Jan-12 to Aug-13 UPA 2: Policy paralysis Neutral
Event5 Aug -13 to Mar-15 BJP emerged as biggest party, Oil price correction Rally
Event6 Mar -15 to Jan -18 Global factor, Demon, Financialization Rally
Event7 Jan -18 to Mar -18 Start of US china trade war, LTCG tax Correction
Event8 Jan -20 to Mar -20 Market correction due to pandemic Correction
Event9 Mar -20 to Jul - 20 Post Lockdown rally Rally
Note: Equity represents Nifty index, Gold is MCX gold spot prices, Debt is Crisil Composite Debt Index, FD is SBI Fixed deposit rates (1yr to 2yr). Portfolio is made up of Equity (40%), Debt (40%), Gold (15%), FD (5%)

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Multi Asset Strategy August 2021

Multi-Asset portfolio: Rolling returns

A multi-asset portfolio reduces the negative observations in three years. Volatility and drawdowns also reduce post diversification of equity investment into
Debt and gold.

Returns (%) Returns (%)

1yr rolling returns Equity Gold Debt Portfolio 3yr rolling returns Equity Gold Debt Portfolio
Average 16% 14% 7% 12% Average 9% 11% 8% 9%
Minimum -57% -18% -1% -37% Minimum -6% -8% 5% 1%
Maximum 99% 77% 16% 60% Maximum 28% 36% 13% 22%
Stdev 24% 16% 4% 14% Stdev 6% 11% 2% 3%
Max Drawdown -60% -18% -9% -38% Max Drawdown -60% -18% -9% -38%
Negative observation 21% 21% 2% 11% Negative observation 4% 18% 0% 0%
Return >10% 58% 53% 27% 53% Return >10% 44% 49% 12% 35%

Returns (%) Returns (%)

5yr rolling returns Equity Gold Debt Portfolio 7yr rolling returns Equity Gold Debt Portfolio
Average 10% 11% 8% 9% Average 11% 12% 8% 10%
Minimum -2% -3% 5% 3% Minimum 4% 0% 5% 5%
Maximum 21% 28% 10% 17% Maximum 22% 26% 10% 17%
Stdev 4% 9% 1% 2% Stdev 3% 7% 1% 2%
Max Drawdown -60% -18% -9% -38% Max Drawdown -60% -18% -9% -38%
Negative observation 2% 9% 0% 0% Negative observation 0% 0% 0% 0%
Return >10% 52% 50% 1% 29% Return >10% 52% 52% 0% 34%
Note: Equity represents Nifty index, Gold is MCX gold spot prices, Debt is Crisil Composite Debt Index, FD is SBI Fixed deposit rates (1yr -2yr). The portfolio is made up of Equity (50%), Debt (35%), Gold (15%)

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Multi Asset Strategy August 2021

Disclosures:
The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).
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Multi Asset Strategy August 2021

Disclaimer:
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