Markets are trading at reasonable levels and the rally may continue if investment cycle revives and the government expands tax revenue collection and curtails wasteful expenditure on various subsidies, says Gopal Agarwal, Chief Investment Officer, Mirae Asset Mutual Fund.
Can you describe the investment philosophy of Mirae Asset Mutual Fund?
Our investment approach is based on sticking to basics of investing. It is a combination of both top-down and bottom-up approach. As our performance is benchmarked to broader indices, a top-down approach based on outlook on a sector helps decide the sector weightage. Stock selection within a sector is more bottom-up oriented, driven by individual business merits. We prefer growth oriented businesses - however, we avoid chasing growth at high price. We believe that growth should be a subset of value.
It is our constant endeavor to enhance and optimize investor returns, while keeping the risk factors at reasonable levels.
The markets have hit a new high. Is it a short term rally or do you see a sustained rally going ahead?
Indian equity markets may see continuous upward movement provided we kick start investment cycle, expand tax revenue collection and curtail wasteful expenditure on various subsidies. Currently Sensex is trading at 15.5xFY15E which is at reasonable level compared to historical trends.
Your flagship fund – Mirae Asset India Opportunities Fund completes four years. How do you plan to sustain the performance going ahead?
Mirae Asset India Opportunities Fund is a large cap biased diversified fund, which has the flexibility to invest across sectors, market capitalization, themes & investment styles. In general, midcaps is about 25-30% of the portfolio, with focus on larger midcaps.
The overall investment approach is to build a portfolio of solid businesses that could perform creditably over all time frames. While we follow a bottom-up approach for stock selection, the overall portfolio construction also consider sector weights of benchmark, to reduce risks.
We seek to deliver consistent superior risk adjusted returns for our investors. It will be our endeavor to enhance and optimize investor returns, while keeping the risk factors at reasonable levels.
How do you generate new investment ideas for picking up stocks?
Some binding principles of our investment approach are:
- Focus on businesses which have sustainable competitive advantages, and high return ratios (E.g.: ROE, ROI etc.), and free cash generation. We prefer companies which are sector leaders
- A strong and clean management track record that has proven it can manage businesses in all economic cycles
- We seek companies which provide "Margin of Safety", which mitigates underlying risks (related to business, liquidity and volatility which are very important for mid and small cap companies).
- We prefer companies with strong earnings growth & earnings visibility
What have been your notable investment mistakes? What did you learn from them?
There are a few mistakes in this journey of almost six years. Most mistakes occurred due to poor capital allocation of the management, promoters' interest in non-core businesses, over diversification and assumption that equity is for free. Some mistakes have also occurred due to wrong assumption of macro environment and business dynamics.
We try to do a thorough due diligence before adding any stock in portfolio. The lesson we have learnt is that wealth can only be created by sticking to businesses with superior cash flow and decent return ratios.
Which sectors are you avoiding currently?
At this juncture, we don't have any biases as macro stability is visible and valuations are reasonable across the market barring few sectors.
What themes do you see playing out well?
There is value emerging in many sectors like oil & gas, mineral & mining, capital goods and financials. With possible revival in global growth and improvement in India's macro and fiscal situation, a lot of wealth can be created in this segment.
