India’s seventh largest mutual fund, Axis Asset Management Co Ltd, has suspended two of its fund managers, Viresh Joshi and Deepak Agarwal, for their involvement in front-running of shares through schemes managed by them. The suspension is pending further investigation.
Front-running is trading in stock or any other financial asset by a broker who has inside knowledge of a future transaction that is expected to affect its price substantially. A broker may also front-run based on insider knowledge that their firm is about to issue a buy or sell recommendation to clients that will almost certainly affect the price of an asset, according to Investopedia. The practice is illegal in India.
The Axis fund has holdings in 81 shares and assets under management worth around Rs 2.60 lakh crore.
Joshi was the chief trader and equity fund manager, overseeing Axis Arbitrage Fund, Axis Technology ETF, Axis Banking ETF, and Axis Consumption ETF. He had been part of the fund house since 2009, while Deepak Agarwal wasthe assistant equity fund manager for Axis Quant Fund and Axis Consumption ETF, having joined the fund house in 2015.
The Bloomberg IDs of both these officials have been deactivated and neither are allowed to get involved in the fund’s investment activity.
Axis Mutual Fund was set up in 2009. MD & CEO Chandresh Nigam and Viresh Joshi were part of the original team.
A preliminary investigation by the Securities and Exchange Board of India (SEBI) had detected a Rs 170 crore scam of front-running of nine scrips by the duo. The SEBI’s 2017-2019 audit had detected fraudulent and unfair trade practices barred for intermediaries and individuals with direct or indirect access to non-public information regarding big client orders or pending mutual fund trades. The market regulator was probing all the transactions of the two senior executives over the past few years, along with the transactions of other team members.
(For some time, there were loud whispers of a Rs 1,000 crore scam in a large mutual fund owned by a leading private sector bank involving front- running by fund managers and dealers. In Fact, the buzz was that one such fund manager was allegedly using a Lamborghini and buying luxury apartments in and around Mumbai. He was said to be on the payrolls of brokers, and had accumulated small and midcap stocks on behalf of the mutual fund. He was further instrumental in boosting the small and midcap stocks and placing them with the mutual fund once they crossed a certain size threshold. There was also talk that this may be rampant in the Indian mutual fund industry, and what some said on Twitter, is an industry practice, reports IANS).
Axis MF has changed the fund managers for seven of its schemes -- Axis Arbitrage Fund, Axis Banking ETF, Axis Consumption ETF, Axis Nifty ETF, Axis Quant Fund, Axis Technology ETF, and Axis Value Fund. Joshi has been removed from five of these schemes, namely Axis Arbitrage Fund, Axis Banking ETF, Axis Consumption ETF, Axis Nifty ETF and Axis Technology ETF.
Axis Bank Ltd, the third-largest private sector bank in India, holds a 74.99 per cent stake in Axis MF, with Schroder Singapore Holdings Pvt Ltd holding the rest.
