Morningstar spoke with Gopal Agrawal, Chief Investment Officer, Mirae Asset Global Investments (India), for India Fund Observer 2011, an annual review of the year gone by.
Agrawal is the manager of several Mirae Asset funds, the flagship being Mirae Asset India Opportunities, a 5-star fund.
He spoke about stocks, valuations, sectors he is positive on and talked about some of the fund he manages.
Here are excerpts from the interview.
2011 was a rough year for equities. Did anything surprise you?
2011 was a volatile year for all asset classes, but particularly for equities and commodities. The hardening of commodity prices in the first half and the subsequent increase in the price of oil was higher than anticipated, especially in the context of a slowdown in world economic growth.
The difference between the monetary policies of the western world and the developing world was very stark, which was also surprising.
Coming to India, how do you see markets in 2012? How are valuations now? Are the negatives in the price?
On the valuation front, we are trading close to 12x or 12.5x forward earnings multiple, while the median for the last 10 years is around 14.7x. So we are definitely trading at a discount. I would say most of the negative news is factored into the market.
If the government provides a boost to reforms, takes steps to restore confidence in corporate India, and moves to work on fiscal consolidation, it will be a huge positive for equities.
Where do you see earnings in the next fiscal year? And sector-wise, what would be your preference?
In FY2012-13, we expect about 12-15% earnings growth. This year, we expect last year’s beaten-down sectors to outperform. Inflation has peaked out and we think interest rates will gradually ease. So some money will move from consumer defensive stocks into rate-sensitive sectors.
What are the key sectors you are positive on?
We see opportunity in the infrastructure space. We continue to remain positive on pharmaceuticals while financial and cement also look good.
Infra has had a lot of problems recently, especially given with the slowdown in capex and funding issues, etc. You would think the worst is over for them?
The problem for the infrastructure sector has been execution and high interest rates. Interest rates are now poised to come down but on the execution front, we need to see more steps coming from the government.
Infra firms have also been impacted due to the rupee depreciation as they have taken on a lot of foreign debt. So there, too, they should now get some respite as we think the worst is over the rupee, barring any unforeseen scenario.
Mirae Asset India Opportunities has been a 5-star Morningstar-rated fund. What is its mandate and what are the things you look for while buying companies for this fund?
As the name suggests, it is an opportunity fund. As a twin strategy, we have long-term holdings which are about 75%-80% of the fund while 20% is a tactical portion through which we invest whenever we see opportunities in any particular area such as changing government regulations, or a risk-on-risk-off trade, or on stock-specific valuations.
You launched an India-China consumption focus fund last year. How do you see valuations in China currently especially given macroeconomic concerns of excessive lending, property bubble or even a hard landing for the economy there? What is the asset-allocation strategy with the India-China consumption fund?
The mandate of the India-China consumption fund is to invest up to 35% in China and the remaining portion in India. Currently, we are at about 30% in China, 65% in India and 5% cash.
Valuations of Chinese equities have come down to about 9.5x times, because of a fear of hard landing but data suggest that the Chinese economy will see a soft landing with growth bottoming out at about 8%.
The fund has done well since its launch despite both markets doing badly. What was at play there: a weak rupee or outperformance of some individual stocks?
To some extent, I would attribute it to the rupee but largely we did some good stock selection. In China, the broader market was down about 22% last year but some consumer stocks outperformed in a big way.
To read the complete interview, download the India Fund Observer, a yearend report of Indian mutual funds and the industry for the year gone by.
