Axis ELSS Tax Saver Fund Pyt of Inc Dis cum Cap Wdrl INF846K01149

The strategy emphasizes identifying companies with a three-to five-year growth potential, prioritizing quality over valuation. This approach may result in investments in higher-priced stocks if they meet the fund's quality and growth criteria.

The emphasis is on companies demonstrating sustainable earnings growth, led by credible management with strong corporate governance. Corporate governance plays a pivotal role in stock selection, and the team is willing to invest in companies that may not be market leaders but exhibit robust governance practices. The investment process is rooted in bottom-up research and risk assessments focused on liquidity and volatility. Financially, the preference is for companies with low debt and strong balance sheets. The evaluation process includes comprehensive checks through conversations with dealers, distributors, and clients. Additionally, the team integrates environmental, social, and governance factors into its analysis, assessing material risks that may affect sustainable earnings. This ESG assessment is supported by direct engagements with investee companies and insights from broker research.

While the overarching strategy remains intact, significant changes have been made in portfolio construction processes and in the way the strategy is executed. Therefore, the effectiveness of this modified investment approach is yet to be fully evaluated, warranting a cautious stance. As tangible evidence is needed to confirm the manager's successful implementation of this refined approach and its ability to deliver desired outcomes, we maintain an Average rating on the Process Pillar.

The fund maintains a primary focus on large-cap stocks, typically allocating 65% to 75% of its portfolio to this segment, while the remainder is invested in mid- and small-cap stocks. The fund employs a combination of bottom-up and top-down approaches for stock selection. While bottom-up analysis remains the dominant strategy, the top-down approach is selectively used to capture specific themes.

Recently, changes have been implemented in the investment approach and portfolio construction. The portfolio has become more diversified than before, with an increase in the number of holdings. This has also led to lower concentration levels, which is a departure from a rather concentrated and high-conviction approach that was applied earlier. To mitigate stock-specific risks, the investment team has now established deviation limits for individual stock exposure relative to the benchmark index. Although there are no explicit restrictions on sector weights, the fund's sector allocation has shown a trend of narrowing its deviation from the benchmark, indicating a more benchmark-aware approach without being strictly benchmark-aligned.

Historically, the fund avoided highly cyclical and heavily regulated sectors. However, the revised investment approach evaluates opportunities on a bottom-up basis, assessing each stock based on its intrinsic value. This shift is consistent with the team's objective to minimize benchmark risk. Consequently, sectors previously excluded, such as energy, now have a presence in the portfolio.

These adjustments aim to mitigate risks associated with the fund's prior high-conviction, concentrated strategy. However, much of the fund's past performance success was achieved with the earlier approach. Therefore, it will be essential to monitor how effectively the team and manager adapt to and implement these changes to deliver consistent, stable results for the fund.