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All mid & smallcaps aren’t expensive: Neelesh Surana, CIO, Mirae Asset

Mirae Asset Large & Midcap Fund, one of the well-performing equity funds has opened its doors. Neelesh Surana, Chief Investment Officer, Mirae Asset Investment Managers (India), talks about why the fund house has lifted investment restrictions on the fund at markets peak, sectors where he is finding new ideas, why investors ignored higher taxation on capital gains in Budget 2024 and where to invest Rs 10 lakh in this market.

August 05, 2024 / 12:53 IST
Neelesh Surana, Chief Investment Officer, Mirae Asset Investment Managers (India)

The biggest fund in the large and midcap category — the Mirae Asset Large and Midcap Fund — has removed restrictions on fresh investments in the scheme after a period of four years, starting August 1st.

While investments via systematic investment plans (SIPs) were allowed, there was a limit of Rs 25,000 per month. But now investors can invest any amount in the scheme. Since the initial restriction in November 2020, which limited monthly SIPs to Rs 2,500 (later increased to Rs 25,000 in October 2023), Indian equities have experienced substantial growth.

During this period, the Nifty 50 Total Return Index (TRI) and Nifty Midcap 150 TRI have risen approximately 1.2 times and 2.3 times, respectively.

In an interview with Moneycontrol, Neelesh Surana, Chief Investment Officer, Mirae Asset Investment Managers (India), addresses lifting of the investment restrictions as the markets peak, sectors where he is finding new investment ideas, why investors have ignored higher taxation on capital gains, and where to invest Rs 10 lakh in this market.

Surana is also co-fund manager of the Mirae Asset Large and Midcap Fund, which has assets of around Rs 39,500 crore.

Edited excerpts:

Why were restrictions placed on Mirae Asset Large and Midcap Fund four years ago, and what has changed now?

Earlier, restrictions were placed because the fund was receiving a disproportionate amount of money, and there were limited opportunities with respect to investment at that time.

Subsequently, we have been receiving feedback from investors about increasing SIPs and lump sum investments. The team evaluated this was the right time to lift restrictions, deciding not to wait indefinitely for a large market correction.

Over the past five years, the scale of opportunities in the mid and smallcap segments has increased significantly. Existing companies have grown bigger in scale, new companies have emerged due to many IPOs, and liquidity has improved. Strong companies, particularly in the midcap space, have become stronger. While the market classification has remained the same, the scale of the economy, underlying profit, and business opportunities have increased significantly.

At a glance

Aren’t you worried about market valuations?

Valuations is a concern across markets and segments like smallcaps / certain thematics, rather than only the large and midcap category.

It's not accurate to say that all mid  and smallcaps are expensive. The choice of businesses has increased significantly in the last five years.

Also read | From FOMO to FOLO: Navigating investment trends with a long-term outlook

For us the investible universe and companies which we are tracking has almost doubled to about 500 in the last five years. Even if say 70 percent of the market is not reasonable or is expensive, the large base provides a good hunting ground for the remaining 30 percent.

Instead of labelling the markets as expensive, it's better to say that no pocket is very cheap, most business are in reasonable zone and few frothy.

With restrictions lifted, what is the investment strategy for the fund?

The Rs 40,000-crore fund's portfolio construct remains agnostic to inflows or outflows, and will be managed by Ankit Jain and me in the same way as it was earlier.

What are your views on Budget 2024?

The budget continued with the government’s existing thought process and lays a strong foundation with transparency and conservative assumptions, which builds credibility. It emphasises fiscal prudence, which will build a strong foundation for growth, a stable currency, and low cost of funds.

How are you interpreting the market reaction to capital gains tax hikes?

Moving long-term capital gains tax from 10 to 12.5 percent is unlikely to significantly change investor decisions on asset allocation. Equities still offer better post-tax returns compared to other asset classes.

Mutual funds, as pass-through vehicles, remain a superior product for investors despite tax changes. Taxes are paid on redemption, not on underlying buying or selling of assets.

Which market segments are you focussing on for stock investments?

Currently, no market segment is very cheap, but we see better risk-reward ratio in three segments.

First is banking. It's reasonably priced and a few large names not yet participating in the market rally, offering earnings stability and potential minor rerating.

Also read | Can SEBI question your fund manager’s buy-sell decision?

Second, consumer discretionary. While, some pockets have been rerated, like automobiles, and stability is returning to areas affected by the K-shaped recovery.

Third is specialty chemicals or pharma manufacturing. Earnings were impaired in the last two years, but are stabilising.

On the other hand, valuations are elevated in capital goods and infrastructure segments.

Quote cards

What are the biggest risks to the equity markets?

Risks are present in segments with high PE multiples, particularly in industrial, defence, capital goods, and the SME space.

What should be the investment strategy for someone with Rs 10 lakh to invest?

Existing investors should continue with their SIPs over the next three to five years and aim for 12-15 percent returns. Multicap, large & mid, and flexicap funds may work well, offering representation across sectors.

For new investors, hybrid products may also be better given the current market levels. Multi-asset funds, equity savings, balanced advantage, or aggressive hybrid funds can help average out at lower levels, depending on the individual's risk appetite.

Abhinav Kaul
first published: Aug 5, 2024 06:38 am

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