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Our investment philosophy is centred on participating in high quality businesses up to a reasonable price

BFSI Industry Interview

On: Jul 14, 2015 | Duration: 1.00 hrs | From: Advisorkhoj Team
BFSI Industry Interview in Advisorkhoj - Our investment philosophy is centred on participating in high quality businesses up to a reasonable price

Mr. Neelesh Surana is Head of Equities 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. An engineering graduate with MBA in Finance, Neelesh has over 18 years of experience in equity research and portfolio management. Prior to Mirae, Neelesh was with ASK Investment Managers Ltd., as Senior Portfolio Manager responsible for managing domestic, and international portfolios.

Congratulations on the launch of your NFO - Mirae Asset Prudence Fund - a Hybrid Fund. The fund plans to invest minimum 65% amongst Top 100 Companies in India. Please explain

We have chosen to have large cap biased equity oriented asset allocation fund. It will provide opportunity to create long wealth with lower volatility due to a large cap biased equity portfolio and debt allocation between 20 to 35%.

The equity portion would be primarily consisting of large cap oriented high quality companies. Large caps as defined by Top-100 companies would constitute about 65% of the overall allocation. We believe that higher large cap allocation will help improve overall risk adjusted returns, and lower volatility.

We believe this product will best suite Moderate Risk investors who want to get the potential benefit of both equities and debt and invest with a time horizon of atleast 2-3 years.

In the last one year we have witnessed huge number of New Fund launches. What is the rationale behind launching a NFO even though we understand that for MIRAE it completes the product basket! Can you please explain to our readers the rationale behind the fund?

Mirae Asset Prudence Fund offers a simple solution to benefit both from equities and fixed income. Mirae Asset Prudence Fund will invest in both equities and in debt. The asset Allocation will be minimum of 65% in Equities which can go up to 80% at maximum. The remaining will be invested in debt. The shift of allocation between debt and equities is a function of valuations, growth outlook, and interest rates.

Our last India dedicated equity oriented fund was about 5 years back. As you mentioned, one of the reasons is to complete our portfolio of offering.

Can you please explain to our readers the rationale behind essentially having a Hybrid Fund in their portfolio from Asset Allocation perspective?

According to the study 80:20 equity: debt portfolio mix doesn’t compromise on returns but helps reduce volatility. We need to educate and highlight this to investors.

This kind of portfolio also provides the advantage of tax efficiency and automatic rebalancing as well. Thus we believe investors can capture potential of both equity and fixed income in Mirae Asset Prudence Fund.

Do you expect RBI to do more rate cuts this year? When do you see the RBI rate cut actually translating into higher credit off takes?

We are constructive on bond market due to the following

  • We expect fiscal deficit will improve;

  • We think the high real interest rates provide room for further rate cuts by RBI and

  • Demand for Indian bonds is rising.

We think over a period of time the G-Sec yields will start tracking the repo rate.

We find that the top 5 sectors for almost all the AMCS are now Banking and Financial, Construction, Technology, Services and automobiles. Are you going to follow the same sector allocation trends for this fund? If no, then what other sectors you are bullish on? If yes, do you still think more is expected from these sectors?

We are positive on private banks, consumer discretionary, oil marketing companies, pharma, building materials, etc.

We strongly believe that stock selection is equally important within as sector, give huge divergence in returns over the last many years.

Some experts proclaim that we are in a new secular bull market run (even though the Indian stock market recently touched its life time high and corrected by around 10% from there) while some are more guarded as they feel this is a hype rally only and soon settle to realistic levels. What is your take on the current market and what do you see as the key drivers for markets in the next three to five years?

We believe that the Indian economy is on the right track towards recovery given the significant improvement in macros like current account deficit, inflation, interest rates, etc. These coupled with concerted efforts by government to revive the investment cycle, initially through public capex will eventually lead to growth in corporate earnings, which is currently muted. Fall in interest rates will have multiple benefits – it improves topline of rate sensitive businesses, improves cash conversion; and also P/E multiple expands as cost of fund is lower.

Given the likely improvement in corporate earnings over next few years, reasonable valuation, we believe that investors should continue to invest optimal allocation towards equities.

What is the valuation gap between Midcaps vs Large Caps in the current market scenario?

Midcaps were cheap about 2 yr. back, and in that context, the easy money in midcaps is over. Going forward returns in midcaps will be selective, and will be driven by individual merit of the business.

What is your strategy for the debt portion of the portfolio of Mirae Asset Prudence Fund over the next 12 months?

We are constructive on bond market. We will try to have a modified duration of around 4-5 years (considering attractiveness of yields weighted on the risk scale) and build a portfolio mix of treasury and good quality corporate bonds.

An analysis of the performances of your schemes – Mirae Asset India Opportunities Fund and Mirae Asset Emerging Blue-chip Fund – these have given stellar performances so far. Are you proposing any changes in these schemes in keeping tune with the recent market trends? What broadly will be your style and strategy going forward considering the fact that the markets are not cheap?

Our investment philosophy will remain the same, which is centred on participating in high quality businesses up to a reasonable price, and holding the same over an extended period. Focus on stock selection driven by individual merit of business. We have been running a well-diversified portfolio. The changes made recently are in sync with sectorial preference as mentioned above. Overall, we are positive on private banks, consumer discretionary, oil marketing companies, pharma, building materials, etc.

Anything else would you like to add for our readers?

We would advise investors to invest in a disciplined way in equities within the earmarked asset allocation. Many a times the action required is “nothing” i.e. simply following a well-disciplined asset allocation with planned diversification. We expect meaningful returns to investors with patience.

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