Gopal Agrawal, CIO, Mirae Asset Global Investments believes that mid-caps should continue to do well
Investors are increasingly moving
towards gold. How do you think will gold perform in 2013?
Gold has already corrected heavily in dollar terms. Gold has corrected $ 300 from its peak. There could also be a rebound since the risk weightage of gold is increasing from 50% to 100% under the Basel III norms from January 2013 in Europe. So there can be some buying in gold. I’m optimistic but it won’t go to a new high. Gold is likely to underperform equities because the housing market in coastal area of USA has almost recovered. Historically we have seen that once the housing market recovers the wealth effect comes in and people take more risks.
When the markets were volatile sometime back, market pundits were advising sticking to large caps. Is it time to look at mid-cap funds?
We expect commodity prices and rupee to remain stable. Mid-cap companies tend to do well when commodity, currency and corporate earnings are stable. So chances of improvement in earnings of mid-caps companies become higher. Margins of these companies will also improve because of the base effect. In this scenario, mid-caps tend to outperform. We expect better global liquidity in the first half of 2013-14. Japan and Britain have announced larger quantitative easing (QE) measures. Euro zone QE is already happening and Federal Reserve has also announced its QE plans. China has given a guidance of 16% credit growth which augurs well for global liquidity. Mid-cap companies have started delivering good results and we think the momentum will continue.
So are you skewing your portfolios towards mid-caps?
Yes, we are increasing our exposure to these companies.
What is your outlook on the market for the next six to nine months?
It will be difficult to predict the movement of indices but people will take more risks going forward. There will be a broad based market performance rather than selective sectors as was the case in 2011 and major part of 2012. We are not betting on sectors. We are focusing on undervalued stocks. We expect corporate earnings to be around 13% to 14%. So markets will be broad based.
Will FIIs continue to raise their exposure in Indian markets in 2013?
It will be even better. India is attractive in terms of relative opportunities vis-à-vis other countries but the government should deliver. FIIs are investing in the hope that government will act on fiscal consolidation. If that continues then it is better for us.
Will the government’s efforts to discourage gold imports help rupee?
The government is taking steps to cut down gold imports. So a significant increase is gold prices is behind us. The trade deficit is expected to get better from here. So the allocation to gold will decrease. So, a combination of these two factors might help trade deficit stabilize to little lower levels than what we will see in FY13. In such a situation, the rupee could only depreciate if there is a very high government borrowing next year. If government runs on the path of fiscal consolidation then the Indian currency will be in a better position. There could be a moderate rebound also.
What is your investment approach?
We are value investors. We never chase momentum stocks. We follow this theme in our Mirae Asset Emerging Bluechip Fund. We buy growth at a reasonable valuation but we are happy to pay a higher price to earnings (PE) multiple for good growth and corporate governance. There are certain stocks which are available for a PE of three to five but that doesn’t mean they are good. Generally their corporate governance standards don’t tend to match our expectations.
We are seeing redemptions from equity funds on the back of a rally. What is your advice to investors?
Today gold and real estate are the first choice of investors. People have invested heavily in these two asset classes. It would not be advisable to chase a single asset as it tends to be risky. We have seen this in equities also. So you have to have a judicious asset allocation.
