Equity Market Outlook

December 2022

1
Market Recap
Global Risk-On Sentiment drives market recovery

Current • Indian markets ended the month at record highs as a late surge by FPI’s
Market Snapshot 1 M Change
Level
drove equity indices higher.
Equity Markets
• For the month S&P BSE Sensex & NIFTY 50 ended the month with a
S&P BSE Sensex 63,284 3.8%
gains of 3.8% 4.1% respectively.
NIFTY 50 18,758 4.1%
• Mid and small caps underperformed their large cap peers with NIFTY
Market Flows Midcap 100 & NIFTY Small cap 100 ending the month up 1.9% & 3%
respectively.
FII Flows Rs 36,239 Cr
DII Flows - Rs 2,430 Cr • Crude prices softened dramatically this month on fears of over supply
and a weak global outlook.
External Trends
USD/INR 81.43 -1.6%
Brent Crude Oil (US$) 85.43 -9.9%
MCX Gold (INR) 52,574 4.8%

Source: NSDL, RBI, MCX, Bloomberg, Axis MF Research. Data as on 30th November 2022
2
Global Flows - Key indicator
Flows have increasingly provided directional guidance for
global equities

• Latest foreign funds flows seem to confirm that capital is returning to EMs. In November, excluding China, EMs have on a net basis,
received more than US$15bn, the highest inflow in more than two years, EMs inflows at US$18bn.
• There is also evidence of a clear slowdown of flows into cyclical and commodity winners of ’22 (Brazil and Indonesia) with net funds
allocated to NE Asia and India.

Source: Kotak Institutional Equities, Axis MF Research. Data as of 30th November 2022
Past performance may or may not be sustained in future.
3
India V/s EM
India has outperformed country and regional indices
consistently over a period of time
15% 13% MSCI India vs EM Relative Cumulative
return at new high
10% 8% 8%
50%
5% 3%
40%
0%
0%
-5% -3% 30%
-5%
-6% 20%
-10%

-15% 10%

-20% 0%

-25% -10%
-26% -26%
-30%
-20%
YTD 1 Year 3 Year 5 Year 10 Year
Feb-16 May-18 Aug-20 Nov-22
China AC Asia Pacific Emerging Markets India

Past performance may or may not be sustained in future.

Source: MSCI. Data as at 30th November 2022
4
 But this isn’t a Recent Phenomenon
India has been a world beater for 30+ years

GDP Growth Outperformance Strong Relative EPS Growth

1,600 800
World (Rebased to 1993) - Nominal GDP India (Rebased to 1993) - Nominal GDP AC World (Rebased to Aug 1994) - EPS (US$) India (Rebased to Aug 1994) - EPS (US$)
600
1,100
400
600
200
100 0

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022
1998

2018
1992

1994

1996

2000

2002

2004

2006

2008

2010

2012

2014

2016

2020

2022
Superior ROE … Resulting in Stock Price Returns
25% AC World - ROE 1,000
AC World (Rebased to 1993) - Price (US$)
India - ROE
20% 800
India (Rebased to 1993) - Price (US$)
600
15%
400
10%
200
5% 0
2022
1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022
Source: MSCI, Morgan Stanley, Axis MF Research. Data as of 30th November 2022
5
The India Story
Island in an Ocean of Gloom

6
GDP Growth at 6.3%
Growth in Line with Expectations

Key Takeaways
• The domestic demand-side
breakdown showed that gross
fixed capital formation rose the
fastest (at 10.4% YoY), followed
by private consumption (at 9.7%
YoY).

• Net exports were a key drag

• On a 3Y CAGR basis (to remove

pandemic disruptions), GDP
growth improved to 2.5% in QE
Sep-22 from 1.3% in QE Jun-22.

Source: Morgan Stanley, Axis MF Research

Data as of 30th November 2022
7
 India on a Strong Wicket
Domestic recovery robust on all major parameters

Domestic Activity Consumer Sentiment Capacity Utilization Above

Remains Robust Picking Up Long Term Averages
120 85
120 40%
110
110 30%
100
20%
75
100 90
10% 80
90
0% 70
65
80
-10% 60
70 50 55
Domestic Activity Tracker, -20%
Indexed Feb-20 =100 40
60
-30%
Core GVA, YoY% (RS) 30
50 -40%
45
20

Aug-20
May-18

May-21
Feb-19

Nov-19

Feb-22

Nov-22
40 -50%
Jul-20

Jan-21

Jul-21

Jan-22

Jul-22
Apr-20

Oct-20

Apr-21

Oct-21

Apr-22

Oct-22

Manufacturing Capacity Utilization

Index of Consumer Sentiment, YoY% Average

Source: CLSA, Kotak Institutional Equities, CMIE, Axis MF Research. Data as of 30th November 2022
8
 Manufacturing has been on Overdrive
Production Metrics strong in the build up to the festive season

57.6

56.4 56.2
55.9
55.5 55.3
54.9 55.1
54.7 54.6
54 54 53.9
53.7

Sep-21 Oct-21 Nov-21 Dec-21 Jan-22 Feb-22 Mar-22 Apr-22 May-22 Jun-22 Jul-22 Aug-22 Sep-22 Oct-22
Manufactiuring PMI Base Level

Source: S&P Global, Axis MF Research. Data as of 30th November 2022

9
 Corporate Growth
Profit cycle likely to continue

Earnings Beats have been highest across sectors in 7 • Earnings season has closed on expected lines. While
quarters Ex Utilities & Materials headline revenue growth remains comfortable, margins
continue to remain under pressure.
% of Analyst Earnings
2QF23 1QF23 4QF22 3QF22 2QF22 1QF22 4QF21
Beat So Far
Consumer Discretionary 50% 35% 53% 33% 60% 54% 54% • Margins are expected to contract for seven out of 10
Consumer Staples 67% 56% 56% 78% 44% 60% 60% sectors, with commodity producers and Utilities likely to a
sharp drop.
Energy 67% 29% 29% 57% 43% 71% 57%
Financials 56% 55% 50% 36% 39%
Healthcare 100% 31% 8% 31% 54% 82% 42% • Communication Services have seen the highest
expansion in margins, by sector thus far, given recent
Industrials 67% 40% 30% 20% 30% 55% 70% improvements in pricing power.
Materials 27% 79% 88% 50% 43% 75% 58%
Technology 67% 40% 67% 67% 56% 78% 56%
• Consensus earnings growth estimates for Sensex in F23
Utilities 33% 57% 57% 43% 43% 57% 57% have declined by 2.1% in the past three months to 17%.

Source: Axis MF Research. Bloomberg. Data as of 30th November 2022

The sector mentioned herein are for general assessment purpose only and not a complete disclosure of every material fact. It should
not be construed as investment advice to any party. Past performance may or may not be sustained in future. 10
India – Growth Engine of the World
India expected to be the 3 rd largest economy by 2030

Source: Morgan Stanley, Axis MF Research

11
FPI’s have significant Headroom
India’s weight in MSCI EM now stands at 15.55%

• FPI’s have been net sellers in India YTD. This is despite India outperforming most major equity markets

• FPI action part of wider reallocation of portfolios. Ownership trends and analysis of corporate earnings indicate FPI’s have trimmed
active weights in stocks despite strong earnings indicating portfolio pressures rather than earnings quality

• Return of FPI flows is likely to drive valuations of traditional FPI favorites

FPI Ownership in Indian companies stands at a India’s weight in the MSCI EM has been rising
decadal low allowing for significant headroom at the expense of China

Source: CLSA, JP Morgan, Axis MF Research.

Data as of 31st October 2022
12
Equity Valuations

13
Markets Trade at a premium
India trades at a premium given growth in the economy

Indian Markets Trade at Long Term Averages • Valuations are quite rich for the market from an overall
35
standpoint.

30
• We note, select pockets of the markets especially the one’s
over-owned by retail and domestic funds have begun to
show signs of froth.
25 10 Year 23.47
Average: 22.17
• Further, the valuation premia offered to select companies
20 where growth is lacking is increasingly unjust especially as
base effects wean away super normal growth.

15
• The last month’s move is characteristic of a narrow market,
with 4 stocks accounting for ~45% of the entire market rally.
10

• We had last seen this phenomenon in 2019.

Source: Bloomberg, NSE, Axis MF Research

Data as of 5th December 2022
14
Index Valuation Metrics
Drivers of NIFTY 50 P/E since 2019

• NIFTY traded at a ~17.2x one-year forward P/E in Sep-19 and currently trades at ~22x now
• Upward drivers for NIFTY 50 P/E have been re-rating of IT, Consumer Staples & RIL which account for 2/3rds of the increase
• Private banks, metals and PSU Banks have been the detractors over this period on account of earnings momentum

Source: Bloomberg, Axis MF Research. Data as of 30th November 2022

Stocks/sectors mentioned are for illustrative purposes only. The representations should not be construed as recommendation or
investment advice of any form 15
Long Term Trends
New capex cycle on the anvil
3.0%
2.8% Capex, 12m trailing % of GDP
The Indian government has been steadily increasing its capital expenditure 2.6%
as policy makers realized the need for high quality sustainable infrastructure 2.4%
to improve the efficiency of operations in India and become globally 2.2%
competitive. 2.0%
1.8%
1.6%
Since 2014, central & state governments have been systematically 1.4%
increasing infrastructure. While the Centre focuses on multi-state 1.2%
developmental projects, the states target granular city/district level projects 1.0%

Mar-12
Mar-11

Mar-13

Mar-14

Mar-15

Mar-16

Mar-17

Mar-18

Mar-19

Mar-20

Mar-21

Mar-22
Sep-11

Sep-12

Sep-13

Sep-14

Sep-15

Sep-16

Sep-17

Sep-18

Sep-19

Sep-20

Sep-21

Sep-22
piggy backing off central projects to provide last mile capabilities.

36%
Credit Growth 35,000 Total Government Private Sector
32%
30,000
28% New Investment Projects,
25,000 Rs bn (4Q trailing sum)
24%
20,000
20%
15,000
16%

12% 10,000

8% 5,000

4% 0

2005
2001

2002

2003

2004

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019
2015

2019
2000
2000
2001
2001
2002
2002
2003
2004
2004
2005
2005
2006
2007
2007
2008
2008
2009
2009
2010
2011
2011
2012
2012
2013
2014
2014

2015
2016
2016
2017
2018
2018

2019
2020
2021
2021
2022
2022
Source: RBI, CMIE, CRISIL, Axis MF Research
Data as of 30th November 2022
16
India’s balance sheet is healthy
India’s deleveraging cycle is complete

• Corporate India has been in deleveraging mode gradually eliminating high cost debt and excesses of the previous business cycle

• We believe, companies have largely completed their debt repayments and now run more prudent balance sheets

• Further, we believe, companies are now ideally positioned to capitalize on the domestic expansion leveraging their healthy balance
sheets. This cyclical momentum can be an ideal trigger for long term shareholder value creation

• For the banking sector, twin benefits of new credit growth and NPA recovery bode well for operational performance

Corporate leverage has dropped 25% Per capita leverage remains low
significantly
15% drop in absolute 20%
62% leverage levels
60% 15%
47%

40% 10%

20% 5%

0% 0%

F2002
F2003
F2004
F2005
F2006
F2007
F2008
F2009
F2010
F2011
F2012
F2013
F2014
F2015
F2016
F2017
F2018
F2019
F2020
F2021
F2022
F2023E
F2024E
F2002
F2003
F2004
F2005
F2006
F2007
F2008
F2009
F2010
F2011
F2012
F2013
F2014
F2015
F2016
F2017
F2018
F2019
F2020
F2021
F2022
F2023E
F2024E

Household Debt, % of GDP

Corporate Debt, % of GDP

Source: RBI, CMIE, Morgan Stanley, Axis MF Research

Data as of 30th November 2022
17
Challenges & Risks

18
Global Macro
Pessimism remains high

• Global growth estimated to slow to 2.7%

in 2022

• In China, further lockdowns and the

deepening real estate crisis have led
growth to be revised down by 3.3%, with
major global spillovers.

• Europe, significant downgrades reflect

spillovers from the war in Ukraine and
tighter monetary policy.

• Global inflation has been revised up due

to food and energy prices as well as
lingering supply-demand imbalances, and
is anticipated to reach 6.6% in advanced
economies & 9.5% in emerging market
and developing economies this year

Source: Schroders Economics Group. Data as of 24th November 2022.

19
External Sector
Weaker; but impact limited

Domestic Consumption remains a key External demand only a small portion of

driver India’s overall GDP
Consumption Inventories Government
Exports Imports GDP
20 100
90
10 80
70

0 60
50

(10) 40
30

(20)
20
10
0
(30)

Netherlands

Spain

Indonesia
China

Japan
Thailand

India
Vietnam
Malaysia

Australia

Brazil

UK

US
Germany

Italy

Russia

Canada
Turkey
Mexico

France
S. Africa
(40)
Jun-20 Sep-20 Dec-20 Mar-21 Jun-21 Sep-21 Dec-21 Mar-22 Jun-22 Exports (% of GDP)

Source: Kotak, CEIC, Axis MF Research. Data as of 30th November 2022

20
Inflation Below 7%
Sticky inflation, but trending lower

• Retail inflation dropped to 6.8% in October due to favorable base effect even as momentum stayed high led by food prices.

• Inflation in our view has peaked. However, headline inflation numbers will ease gradually as monetary policy takes effect over the next
few quarters

Headline & Core inflation continue to remain Food inflation remains key driver of CPI inflation
Elevated
7.50

6.75

6.00

5.25

4.50

3.75

3.00
Oct-19 Apr-20 Oct-20 Apr-21 Oct-21 Apr-22 Oct-22
CPI Inflation Core Inflation Upper Band

Source: RBI, Kotak Institutional Equities, Axis MF Research. Data as of 5th December 2022
21
Crude Oil
India’s Wildcard

Price of Crude is incrementally seen as a direct proxy to geo political tensions

For India, rising crude is the single largest economic risk
130

120

110

100

90

80

70
Dec-21 Jan-22 Feb-22 Mar-22 Apr-22 May-22 Jun-22 Jul-22 Aug-22 Sep-22 Oct-22 Nov-22
Brent Crude (US$)

Source: Bloomberg, Axis MF Research. Data as of 30th November2022

22
Portfolio Positioning
Where do we go from here?

23
Style Analysis – Recovery Underway
While Growth has recovered, quality remains Weak

• The start of the year was characteristic of value and Quality has underperformed
momentum trades driving benchmark performance
115
110
• Post June, as the value play normalized, other style factors
have begun recovering. Growth has been a key beneficiary. 105
100

• Quality continues to remain a style laggard. However, with 95

strong earnings, return of FPI and market normalization, the 90
quality style factor is likely to recover from recent
underperformance 85
80

Value Momentum Quality Growth Benchmark

Source: Bloomberg, Axis MF Research. Data as of 30 th November 2022

24
 Indian markets have historically reward
quality and growth
High ROE gets rewarded
Quality is a clear winner Growth outperforms value
200 Company ROE % 5 Yr CAGR
1,200
Hindustan Unilever 18.31 67.07
1,000 175
Britannia Industries 14.61 34.94

TCS 27.32 34.19

800
150
Tata Elxsi 66.47 32.86

600 Larsen & Toubro Infotech 56.77 32.65

125

400

100
And low ROE gets punished
200 Company ROE % 5 Yr CAGR

75 Mahindra Holidays 5.11 -32.89

0
IOB -7.72 -28.61
Mar-11
Mar-08
Mar-09
Mar-10

Mar-12
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18
Mar-19
Mar-20
Mar-21
Mar-22

50 IDBI Bank -10.01 -27.52

Dec-20
Dec-09

Dec-10

Dec-11

Dec-12

Dec-13

Dec-14

Dec-15

Dec-16

Dec-17

Dec-18

Dec-19

Dec-21
S&P BSE Sensex (TR) S&P BSE 100 (TR) UCO Bank -20.55 -17.17
S&P BSE 500 (TR) S&P BSE Quality Index (TR) MSCI India Growth Index MSCI India Value Index
Central Bank Of India -28.98 -16.36

Past performance may or may not be sustained in future. Sector(s) / Stock(s) / Issuer(s) mentioned above are for the purpose of illustration and should not be construed as
recommendation. Source: Axis MF Research, Bloomberg. Data as of 31st Mar 2022
25
Fund House View
Way Forward

• Currently, India is an island of calm in an otherwise gloomy global setup. To that effect our focus remains to identify sectors that are
inward looking and relatively insulated from external headwinds

• Our portfolios favor large caps where companies continue to deliver on growth metrics. Corporate earnings of our portfolio companies
continue to give us confidence in the strength of our portfolio companies.

• From a risk perspective, in the current context, given rising uncertainties our attempt remains to minimize betas in our portfolios. The
markets have kept ‘quality’ away from the limelight for over 18 months, making valuations of these companies relatively cheap both
from a historical context and a relative market context.

• Markets at all-time highs also point to a valuation risk in select pockets which we will look to avoid.

26
 Fund Valuations
31 st October 2022

PE (x) P/B (x) ROE(%)

FY21 FY22 FY23E FY24E FY21 FY22 FY23E FY24E FY21 FY22 FY23E FY24E
Axis Bluechip Fund 40.9 32.5 26.0 22.1 5.6 4.7 4.2 3.7 13.7 14.5 16.1 16.8
Axis Focused 25 Fund 47.7 37.5 30.6 26.3 6.3 5.2 4.6 4.2 13.2 13.8 15.1 15.8
Axis Long Term Equity Fund 49.5 40.6 33.3 28.2 9.4 8.1 7.1 6.3 19.0 20.0 21.4 22.3
Axis Flexicap Fund 41.8 32.6 25.9 21.8 6.5 5.6 5.0 4.3 15.6 17.3 19.1 19.7
Axis Multicap Fund 35.9 28.2 22.5 18.9 5.5 4.7 4.1 3.6 15.2 16.7 18.3 19.0
Axis Midcap Fund 49.4 36.9 28.1 23.3 6.9 5.9 5.0 4.2 14.1 16.0 17.7 18.2
Axis Smallcap Fund 51.4 35.1 28.7 23.8 6.1 5.9 5.1 4.4 11.9 16.9 17.8 18.3
Axis Growth Opp. Fund 53.0 41.1 32.2 26.8 7.7 6.4 5.6 4.8 14.5 15.6 17.3 18.0
Axis ESG Equity Fund 45.2 36.4 29.8 25.3 8.5 7.3 6.4 5.6 18.7 20.0 21.5 22.1
Axis Special Situations Fund 43.3 33.7 27.2 23.3 5.4 4.5 3.9 3.5 12.5 13.2 14.4 14.9
Axis Quant Fund 32.3 25.0 19.7 17.6 4.1 3.5 3.1 2.8 12.8 14.0 15.7 15.7
Axis Equity Hybrid Fund 41.5 33.4 27.4 23.5 5.7 4.7 4.2 3.8 13.6 14.0 15.3 16.0
Axis Children`s Gift Fund 41.4 33.4 27.4 23.5 5.7 4.7 4.2 3.8 13.7 14.1 15.4 16.1
Axis Regular Saver Fund 40.7 32.8 26.9 23.1 5.7 4.7 4.2 3.8 14.0 14.4 15.7 16.4
Axis Triple Advantage Fund 40.8 32.7 27.1 23.4 5.6 4.6 4.1 3.7 13.7 14.1 15.3 15.9
NIFTY 50 37.1 28.5 23.7 20.5 4.4 3.6 3.3 2.9 11.9 12.7 13.8 14.3
S&P BSE 100 37.5 28.8 24.1 20.8 4.4 3.7 3.3 3.0 11.9 12.8 13.8 14.4
NIFTY 500 38.0 29.1 24.4 21.0 4.5 3.7 3.4 3.0 11.9 12.8 13.8 14.4

Source: Bloomberg, Axis MF Research. Data used as of 31st October 2022

Please refer SID/KIM for respective scheme benchmarks. Indices mentioned are used as indicators of valuations representative of the
respective market 27
Product Labelling

28
Product Labelling

29
Product Labelling

30
Disclaimer & Risk Factors

Past performance may or may not be sustained in the future.

Statutory Details: Axis Mutual Fund has been established as a Trust under the Indian Trusts Act, 1882, sponsored by Axis Bank Ltd. (liability
restricted to Rs. 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.
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 AMC
reserves the right to make modifications and alterations to this statement as may be required from time to time.
Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.

31
Thank You

32