Video summary

Abakkus Insights – Market Outlook & Fund Update, June 26

Main summary

Key takeaways

Finance

Market Outlook & Fund Update — June 26

1) Macro / market drivers & outlook

India GDP growth

  • Real GDP: 7.7% (FY26) vs 7.1% (FY25)
  • Described as a positive surprise versus estimates despite global headwinds.

RBI monetary policy (early June)

  • Forecast: FY27 growth ~6.6% (or ~6% as referenced in subtitles)
  • Context: FY26 referenced as 6.6% / 5.26 (as mentioned in subtitles)
  • Overall takeaway: not as severe a slowdown as feared.
  • Policy stance: neutral, with policy rates unchanged.

Inflation & crude oil / West Asia risk

  • Near-term risk: higher crude energy prices from West Asia → fuel cost impact and later CPI impact.
  • WPI already spiked sharply, with fuel dominating.
  • Government stance: absorbs part of the cost increase, with remaining burden partly on marketing companies and consumers, implying CPI impact may lag.

Currency / foreign flows support measures

  • Mentioned measures: forex swaps, deposit incentives for foreigners, and tax & trade measures to improve capital flows.
  • Expected potential FII/inflows: ~$50–70 billion (range).
  • Fund manager view: with these measures and stabilization in crude, INR could recover toward ~92–93 (from recent depreciation).

Economic structural positives (2–3 year view)

  • Structural drivers cited: formalization, fiscal discipline, reform initiatives
  • Supports manufacturing and domestic consumption.
  • Base-case expectations:
    • Real GDP growth: 6–8%
    • Inflation: 3–4%
    • Nominal growth: ~11–12%
    • Earnings growth potential: ~13–15%

2) Earnings / sector performance (quantitative mentions)

Earnings growth

  • BSE 500: ~15–16% earnings growth (for the period referenced)
  • Nifty (full year): ~8% earnings growth

Sectors showing strong growth (examples)

  • Capital goods, automobiles, metals, telecommunications

FII flow trend

  • March: very high outflows: ~₹1.22 lakh crore
  • April: ~₹70,000 crore
  • Now / May (as stated): ~₹56,000 crore
  • Message: outflow intensity is easing; domestic flows more than offset DI outflows.

3) Market positioning / style calls

Near-term positioning

  • Market described as selective
  • Small and midcaps viewed as outperforming in the near term due to fundamentals in specific segments.
  • Domestic themes highlighted:
    • manufacturing, defense, healthcare, domestic consumption

Valuations

  • Valuations stated to be in line with long-term averages.

Outlook on small & mid

  • 1–3 months / near term: midcap > Nifty, with small cap particularly strong
  • Expectation: more room for small/midcap vs broader Nifty, if earnings/catalysts hold.

4) Explicit portfolio recommendations / cautions

Caution on risks

  • Monsoon / weather patterns: potential impact on parts of consumption and inflation
  • Crude / currency volatility: continued influence in the near term
  • IT services headwinds: near-term uncertainty around AI-driven disruption and cost/utilization impacts → caution until clarity improves

FII outflows and large-cap pressure

  • Large-cap pressure attributed to risk-off FII selling; team believes intensity is decreasing.
  • Caution on high-multiple pockets, including:
    • stocks trading at ~100x–120x
    • stocks up 200%–500% in ~6 months
  • Framed as caution for “pockets of exuberance.”

Rotation expectation

  • If crude stays contained (talk of crude trending toward ~$70 or lower), INR stability may improve → supportive for foreign inflows and financial names.

Fund updates (Abacus products mentioned)

A) Abacus Flexi Cap Fund

AUM change

  • ~₹4,613 crore (end of last month) vs ~₹3,700 crore previously.

Deployment / cash

  • Deployment: ~91.5%–92%
  • Cash upper limit: 10% (cash noted slightly higher)

Market-cap exposure

  • Large cap: ~40%
  • Midcap: ~20%
  • Small cap: ~30%
  • Others: ~1.2%–2% (due to demerger/listing timing; classification pending; no change in economic exposure)

Active share

  • ~76% (vs benchmark large-cap allocation ~70% mentioned)

Sector tilts

  • Overweight: Industrials, Financial services, Healthcare, discretionary
  • Underweight: Energy, IT, FMCG
    • IT: mostly IT products; ~100% deviation from benchmark IT services
    • Energy: cautious due to crude volatility + regulatory headwinds
    • FMCG: cautious due to valuation vs growth concerns; potential monsoon impact

Risk management / rebalancing stance

  • Trimmed exposure in some segments with good performance to keep the overall risk framework aligned.
  • Readiness to realign toward financials/banks if a tactical catch-up opportunity emerges.

B) Abacus Small Cap Fund

Fund status / deployment

  • Product closed in March; ~30 days to deploy post-closure.
  • Now ~85% deployment; cash upper limit 15%.
  • Cash deployment timeline: ~15–20 days for new flows; typically remains invested in a cycle.

AUM / NFO collections

  • AUM: ~₹90 crore
  • NFO collection: < ₹370 crore

Number of stocks / concentration

  • Target range initially: ~60–70 names; currently ~50–58 names
  • Plan: add ~3–5 names to become fully deployed
  • Top 20 holdings: fully within small-cap space (per explanation)

Performance number cited (very short-term)

  • NS Small Cap Index: ~12–13% return in the period discussed
  • Nifty broader market: down ~5–7%
  • Abacus Small Cap: described as meeting benchmark under near-term constraints; cash levels previously cited ~25–30% on average.

Portfolio “buckets” / alpha sources

  1. High growth spaces: target ~15–25% earnings growth
  2. Valuation comfort + growth revival: e.g., EPC companies, and segments of financials (SME/microfinance)
  3. Export-oriented opportunities
  4. Special situations: turnaround initiatives / management changes (bottom-up)

Risk framework & limits

  • Riskometer: both funds stated very high due to equity >65% exposure.
  • Small-cap mandate limits:
    • No single stock > 3% exposure
    • If a stock rises so weight breaches a higher threshold (example: process 5%), manager must trim
  • Liquidity constraints by market cap:
    • Companies with market cap < ₹5,000 cr: <15% of portfolio (as stated)
    • Very smallest companies kept low; average market cap cited ~₹20,000 cr+

Renewables / metals / commodities emphasis (responding to questions)

  • Not claimed as zero exposure; renewables may exist in names but weights may be limited if stocks have already run up.
  • Metals/commodities: lower exposure because enough high-conviction ideas were not found at valuations via bottom-up selection; commodity opportunity set described as limited “as of now.”

Methodology / frameworks explicitly stated

“MAGE” stock selection framework (used for both funds)

  • M — Management assessment
  • E — Earnings
  • V — Events and trends: near-term catalysts (example cited: West Asia impact)
  • T — Timing
  • S — Structural: long-term themes (examples mentioned: IT services headwinds/GenAI implications, or positives like data centers/renewables)

Small-cap risk management approach

  • Concentration/position limits: max ~3% per stock
  • Target 50–70 names to reduce liquidity/concentration risk
  • Liquidity rule: keep <15% in companies below ₹5,000 crore market cap (as stated)
  • Trim rules if concentration becomes too high after price appreciation

Small-cap investing horizon framework

  • Suggested horizon: >5 years
  • Encouraged staged/scheduled investing:
    • start with ~30–40% allocation
    • then invest over the next 3–4 months

Key numbers & levels highlighted

  • GDP growth (real): 7.7% (FY26) vs 7.1% (FY25)
  • RBI forecast: ~6.6% / 6% for FY27 (as stated in subtitles)
  • Earnings growth:
    • BSE 500: ~15–16%
    • Nifty: ~8%
  • FII outflows:
    • March: ~₹1.22 lakh crore
    • April: ~₹70,000 crore
    • Now: ~₹56,000 crore
  • Crude oil levels (West Asia impact):
    • rise ~35–36% upside, peak ~115
    • back to ~92–93, even below 90 recently
    • future crude expectation: could move toward ~$70 or lower
  • INR recovery expectation: toward ~92–93
  • Earnings growth thesis (2–3 years): ~13–15%
  • Fund AUM / deployment:
    • Flexi Cap AUM: ~₹4,613 cr (from ~₹3,700 cr)
    • Flexi Cap deployment: ~91.5–92%, cash cap 10%
    • Flexi Cap mix: ~40/20/30 (large/mid/small)
    • Small Cap AUM: ~₹90 cr
    • Small Cap deployment: ~85%, cash cap 15%
  • Small-cap performance (period discussed):
    • NS Small Cap Index: ~12–13%
    • Nifty broader market: down ~5–7%
  • Small-cap portfolio structure:
    • names: ~50–58, target to add 3–5 → fully deployed
    • max stock weight: ~3%

Disclosures / disclaimers

  • “Mutual fund investments are subject to market risks. Read all scheme related documents carefully.”

Presenters / sources mentioned

  • Narish Tari — moderator
  • Sanjay Dosshi — Head of Investment & Research, Abacus Investment Manager

Benchmarks / instruments referenced:

  • Nifty, Nifty IT
  • BSE 500
  • NSE Small Cap Index
  • Foreign Institutional Investors (FIIs/FIS)

Original video