Positive on private sector banks, consumer discretionaries: Neelesh Surana

In an interview with ET Now, Neelesh Surana, Head–Equity, Mirae Asset Global Investments India Pvt Ltd, talks about their fund and shares his views on some sectors. Excerpts:
ET Now: First, the highlight about this fund is that you are looking at specific value growth opportunities in the market. So where have you spotted opportunities from that perspective over the last three months because we started off weak for the markets this year, but then the last couple of weeks particularly have been kind?

Neelesh Surana: Over the last few quarters what we have seen is our core investment philosophy remains the same -- that is to participate in high-quality businesses, but up to a reasonable price.

So in the last few quarters what we have seen is quite divergence pocket in the market. We have avoided at one end very high-quality businesses only on account of valuations. So in that area we have been underweight on.

For example, the FMCG sector and the other end of the spectrum where businesses which do not meet our quality criteria and are optically cheap, we have avoided that. In between the two extreme, there were a lot of businesses, a lot of sectors which we think we have added on to them.

Basically, we believe there is a big mean reversion which would happen over time on the growth in top line, a reduction in the interest rates and thus growth in the earnings and possibly more money coming in the equities.

So there is the possibility of PE rerating in that context. The sectors which we have been sort of increasing the weight have been private sector bank, consumer discretionary, select sectors in the infrastructure name, media, auto, and ancillaries. Apart from this, our core position remains in the IT and pharma sectors.

ET Now: The fund has given very good returns compared to the benchmark. How did you manage that and what is your risk management strategy as far as this fund is concerned?

Neelesh Surana: Mirae Asset India Opportunities Fund will be completing six years shortly and in the six years we have given a CAGR of almost 14%, which is almost 7% more than the benchmark, which is BSE 200.

It is a diversified fund, it invests across sectors, it is size agnostic. In addition, because it is a diversified fund, we have about 20 to 30% exposure in midcaps and some of the midcaps have done well over a period of time.

Our focus has been more on larger and quality midcaps and in that context some of the midcaps have migrated to larger size companies and in fact three of the midcaps would have migrated to Nifty over the last one year. So all these factors, may be the stock selection within the sector as well as a few midcaps would have contributed to the returns.

ET Now: So, as part of this fund, which are your preferred sectors and which are the ones that you are underweight on?

Neelesh Surana: As I had mentioned earlier, we believe there will be reversion to mean and many sectors would benefit because of that. In that context, we like private sector banks, we like some of the consumer discretionary names, select companies which have strong balance sheets in the infrastructure sector or ancillaries to the infrastructure sector and our core position remains in IT and pharma.

We are significantly overweight on pharma and in terms of underweight, we are underweight on FMCG mainly on account of the valuation. Given the context of the volume growth, there is a time correction which is happening. In addition we are underweight on some of the weaker businesses. So let us say public sector banks and construction are the sectors we are underweight on.

ET Now: What is the view on auto and cement stocks? Do you see value there?

Neelesh Surana: This is the second year of downturn in the auto sector and the industry has been hit by slowdown in sales. It is essentially driven by the macro factors and obviously it is rate sensitive.

I think in the near term two wheelers and tractors will do well because of the growth in the farm income. Passenger and commercial vehicles would also, over the next course of year, do well. Commercial vehicles, essentially, because the base is extremely low. From an investment perspective, I would say we are not invested in commercial vehicles or two wheelers. Regarding, the cement sector, we do not like the business at this point in time.