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Valuations favourable from a 3-5 years perspective: Neelesh Surana
Wed, Mar 02, 2016
Source : Jeni Shukla, Citrus Interactive


Mr. Neelesh Surana is Chief Investment Officer - Equity at Mirae Asset Global Investments (India) Pvt. Ltd. He joined Mirae Asset in 2008. In his capacity as Head of Equities, Neelesh spearheads the equity research and investment function. He is responsible for the managing existing equity funds of Mirae Asset (India), as well as, providing research support for the global mandate. Key funds managed by him include Mirae Asset India Opportunities Fund, Mirae Asset Emerging Bluechip Fund, and Mirae Asset India China consumption fund.


In an exclusive interaction with Citrus Interactive he shares his views on his fund philosophy and the market.


What is your outlook on the market? Do you think we have hit the bottom?

It is difficult to give a short term outlook and time the market. In the last one year a mix of global and domestic factors have impacted the markets negatively. At an overall level, India Inc. earnings growth got impaired. The market outlook will be a function of how the corporate earnings revive. Things have improved significantly at macro level. We have benefitted from falling oil prices, inflation-interest rate glide path is favorable, and government is doing a fair amount of work in solving long term structural problems. The investment and capex cycle takes a long time to get traction, which the government is moving in the right direction. It is working with a long term perspective rather than providing stop gap solutions. It is just that currently the corporate earnings are not looking good because of three factors (a) a muted global growth and the world is getting reset to lower commodity prices (especially oil prices); (b) rural demand impacted by monsoons, and (c) recovery in corporate capex is missing. The swing in oil prices is large. Many oil dependent economies have seen a dent in their finances. Such economies have to sell assets (including stocks) to bridge the gap. The selloff has happened in emerging markets. Once they sell their emerging market exposures India is automatically a part of it. The rural economy has had three bad seasons which has also impacted corporate earnings. One can expect revival in corporate profits next year on this low base. The valuations look favourable. From a 3-5 years perspective there is no reason to remain underweight on equities. India is definitely a stand-out in the current scenario.

Please elaborate on the philosophy and fund management strategy for Mirae Asset India Opportunities and Mirae Asset Emerging Blue-chip.

The core investment philosophy is common to both the funds. We do not take cash calls, and do not do hedging. Mirae Asset India Opportunities Fund (MAIOF) is our flagship product in the multi cap space and Mirae Asset Emerging Blue-chip Fund (MAEBF) is our flagship product in the mid cap space. MAIOF is benchmarked to BSE 200 and we typically maintain a 70 to 75% exposure to large caps. Large cap is defined as the top 100 stocks by market capitalization. MAEBF is a midcap fund with a leeway to invest in up to 35% in large cap stocks. We usually keep a 25% exposure to large caps in this fund.

This gives us leeway to investing in large caps, if we believe that such investment opportunities exist where large company has potential to deliver superior growth. Basically, we are size agnostics, and would hunt for quality and growth oriented businesses, irrespective of market capitalization. We want to look at good quality, well-managed businesses which can grow at a reasonable pace even in challenging times. The portfolio is constructed on a risk-adjusted basis so that we do not take too much of deviation at a sector benchmark level relative to the index or at the stock level. Any sector, stock, theme or idea should not have a disproportionate weight.

 

Both the funds have outperformed their respective benchmarks consistently in the last 1, 2, 3 and 5 years. What has led to this outperformance?

Alpha creation over the benchmark comes from stock selection. I would attribute the outperformance to stock selection. Also, in terms of portfolio construct we do not try to deviate too much from the benchmark in terms of sector allocation. A fund manager may have a consistent style which may work in certain periods and may not work in certain phases. So a style-based portfolio may not be consistent. We have a risk adjusted portfolio and we try to beat the benchmark in every period.

 

The stock count of the portfolios has been around 60 on an average which is higher than the equity category median of around 40 stocks. Would you like to comment?

Top 45 names will form about 80% + of the portfolio. Some stocks were bought few years back when the fund AUM was small and we are still holding on to them. These are part of the remaining tail of the portfolio. Some amount comes from benchmarking. But as mentioned the meaningful weight is from 45 to 50 stocks.

 

Which sectors are you underweight/overweight on?

We are focused on cash driven businesses and quality at a reasonable price. We are focused on a few themes – like recovery (especially retail consumption driven), certain banking names and discretionary consumption space which have pricing power (consumer durables, auto, media, auto ancillary and FMCG).  We like some cash generating businesses in infrastructure. On the recovery front we have downstream oil that we are holding on. On healthcare we remain positive. We are underweight on commodities and infrastructure.


 

What is your view on mid-caps vis-à-vis large caps at the current valuations? 

Post the recent correction, we believe that are decent opportunities across market capitalization. However, on a relative basis, I would say that easy money is there in large caps, give the valuation in context of risk (liquidity, longevity, etc.). In the midcap space, one needs to be selective.
 
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