Mirae Asset Investment Managers Predicts Slightly Above Average Index Returns
Market analysts are predicting that index returns will be slightly above long-term averages over the next two years, according to Neelesh Surana, the Chief Investment Officer (CIO) at Mirae Asset Investment Managers. This forecast is based on the current market scenario, which has seen a decline of approximately 5% in the Nifty 500 since its September 2024 peak.
Market Outlook and Fund Strategies
The Mirae Asset team remains positive on the market outlook, citing that much of the negative news is already priced in. Valuations that were expensive two years ago are now reasonable to attractive, reflecting the cumulative impact of tariffs, the West Asia crisis, foreign institutional investor (FII) selling, and concerns over currency and monsoons.
The economy is on a recovery path, supported by monetary and fiscal measures. The combination of favourable prices post-GST 2.0, lower Equated Monthly Instalments (EMIs), and higher disposable income from tax cuts, government support, and the pay commission should drive consumption revival.
Portfolio Construction and Stock Selection
The Mirae Asset team focuses on buying quality at a reasonable price, with an emphasis on two yardsticks: growth should be more than nominal GDP growth, and pre-tax return on capital employed (ROCE) should be at least 15%. The team is overweight in private sector banks and underweight in consumer staples and Information Technology (IT) services due to structural growth concerns.
Market Impact and Details
- The Nifty 500 has declined by approximately 5% since its September 2024 peak.
- Valuation measures such as price-to-book (P/BV) and price-to-earnings (P/E) ratios have fallen by 25-30% or more, depending on the sector.
- The economy is on a recovery path, supported by monetary and fiscal measures.
- The combination of favourable prices post-GST 2.0, lower EMIs, and higher disposable income should drive consumption revival.
- Corporate earnings, which have been muted over the past 18 months, are poised to revert to low double-digit growth.
- Over the next two years, multiples could expand by 10-15%, and thus index returns are likely to be slightly above long-term averages.
Key Takeaways
- The Mirae Asset team remains positive on the market outlook, citing that much of the negative news is already priced in.
- The team focuses on buying quality at a reasonable price, with an emphasis on two yardsticks: growth and ROCE.
- The team is overweight in private sector banks and underweight in consumer staples and IT services due to structural growth concerns.
FAQs
What is the risk-reward scenario across market capitalisations?
Today, there are opportunities in all three segments. Only FIIs have sold large caps heavily, making them a bit cheaper. However, many businesses present in the mid- and small-cap segments are not available in the large-cap space.
How has your investing framework evolved?
The Mirae Asset team has fine-tuned its processes and thinking, with a focus on buying quality and not overpaying for it. The team has also learned to take a graded approach to sell decisions and has reclassified businesses to identify overarching themes.
What is the opportunity in Specialised Investment Funds (SIFs)?
The Mirae Asset team has taken a conservative approach to SIFs, starting with a hybrid offering, Platinum Hybrid Long-Short Fund. This product will provide a better post-tax return than alternatives such as an arbitrage fund.
Conclusion
The Mirae Asset team remains positive on the market outlook, citing that much of the negative news is already priced in. The team’s focus on buying quality at a reasonable price and its emphasis on two yardsticks: growth and ROCE, have led to a strong portfolio performance. Investors can consider taking a long-term view and investing in quality businesses, rather than relying on short-term gains. By doing so, they can potentially benefit from the market’s recovery and achieve their long-term financial goals.
