SENSEX NIFTY
May 02, 2013, 11.46 AM IST | Source: Moneycontrol.com

Don't hold too much gold; shun cyclicals, infra: Mirae

Investors should allocate only a small part of their portfolio to gold as it is not a steady yield generating asset.

Harsha Jethmalani
moneycontrol.com

Given the volatile nature of equities right now, investors should not change their asset allocation based on market movements, suggested Neelesh Surana, head equity, Mirae Asset Global Investments.

“Retail investors have been underweight in equities in the last five years. We would however, expect meaningful returns to be made, as mean reversion would happen with respect to growth, earnings, valuations, and even flow in equities,” he told moneycontrol.com

Investors should allocate only a small part of their portfolio to gold as it is not a steady yield generating asset. “Strong performance of gold particularly over the last 5-7 years, has led to skewed allocation ignoring that returns in gold are also aided by rupee depreciation and recently by the increase in import duty,” he elaborated.

Meanwhile, the fund house is underweight on cyclicals and infrastructure sectors. “We would continue to avoid weaker businesses where free cash generation is feeble, irrespective of low valuation,” he added.

Below is the edited transcript of Neelesh Surana’s interview to moneycontrol.com

Q: Most experts expect the current market rally to fizzle out as it is driven by fall in commodity prices. Do you feel the same?

A: The recent market rally was not only driven by fall in commodity prices, but should be seen in context of receding concerns on many macroeconomic parameters like growth, twin deficits, and inflation.

The concerns receded owing to government’s initiatives towards reforms, particularly those related to oil prices which have far reaching impact on government revenues, deficit, disinvestment program, etc. Going forward, continuation of the announced oil reforms and measures to kick start investment cycle would be key monitorables.

Q: If the market pulls backs then what would you advice equity investors? What should their approach be?

A: We would advise investors not to change their asset allocation with market movements. Many times the action required in one’s portfolio is “nothing” i.e. simply following a well-disciplined asset allocation with planned diversification.

Last five years have been challenging for retail investors as lackluster market has been rather unsettling as a result retail investors are underweight in equities. We would however, expect meaningful returns to be made, as mean reversion would happen with respect to growth, earnings, valuations, and even flow in equities.

Q: Gold, which was once seen as safe haven has cracked; do you think this will now drive investors towards equities, mutual fund schemes particularly?

A: Strong performance of gold particularly over the last 5-7 years, has led to skewed allocation ignoring that returns in gold are also aided by rupee depreciation and recently by the increase in import duty.

We believe investors should look at Gold as a small part of their asset allocation as gold per-se is not a steady yield generating asset. Relative under-performance of competing asset class like gold should have minor positive bearing on equities which have been significantly under owned in last 4-5 years.

Q: Has this earnings season met your expectations till now?

A: The results season thus far has been mixed with Consumer related sectors particularly performing better on account of margins expansion owing to soft commodity prices. Heterogeneous performance within IT was a surprise. We would not extrapolate much from Q4FY13 numbers given the low expectations on backdrop of the likely lowest GDP growth registered in a decade.

 Q Given the current market scenario how have you positioned your portfolios?

A: We are focusing on sectors/companies which are able to withstand current challenges or sector/companies with levers to revert to mean both in topline growth as well as margin expansion.

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