Mirae Asset India Equity Fund has a very good track record. It's 10-year annualised return is 18.60%. Here are some points to note about this fund.
- Star Rating: 5 stars
- Analyst Rating: Silver
- Fund Manager: Neelesh Surana and Harshad Borawake
- Morningstar Analyst: Nehal Meshram
- Date of Analysis: July 2018
- Category: Equity Multi Cap
Investing mandate
Being a multi-cap fund, the fund manager has the flexibility to invest across market caps, but historically the manager has predominantly invested in large-cap high growth companies at reasonable prices.
The strategy of the fund is to invest across sectors, market caps, and themes. Alpha is generated mainly through stock selection rather than sector rotation.
The fund has traditionally held a significant stake of around 75% in large size companies, focusing primarily on high-growth stocks. We believe it is a well-diversified portfolio, free from a strong bias to any particular sector and without excessive exposure to a single stock.
The portfolio typically holds 55-60 names and from a risk perspective, the volatility of the fund is reasonable.
Taking cash calls is not part of the strategy.
How stocks are picked
The investment philosophy is built on three core principles: quality businesses with stable earnings, strong management, and attractive valuation.
The process includes both quantitative and qualitative stock screening with bottom-up stock-picking. The sector selection is done through top-down approach mainly based on growth prospects. Analysts then assess stocks at the industry and company levels and focus on key drivers such as ROCE, ROE, and EBITDA margin.
Within the framework, a lot of emphasis is on qualitative analysis like management quality and execution capabilities. These are quantified by evaluating the trailing 10-year track record, which helps in removing the subjective element.
Meeting with company management is also vital here to gain company-specific and industry information.
Then comes the focus on valuation, which becomes a key driver behind entry and exit timing. This valuation process along with quantitative factors drive the conviction level in the stock, which helps to exclude companies where business fundamentals are not solid and stocks that are expensive.
Recently, the manager has been increasing allocation in tech stocks. The most favoured sectors in the past 5 years has been Financial Services, with an average exposure of 30%, followed by Consumer Cyclical (12%). Surana built meaningful positions in favoured stocks such as HDFC Bank, Infosys, and Reliance Industries. The portfolio also exhibits distinct positions at the stock level by taking a contrarian view.
Fund manager
Surana has been willing to ride through periods of adversity and stick to his long-term views, with turnover below the category average, demonstrating patience and conviction in the stocks that he invested in.
Despite being launched in the midst of the 2008 global financial crisis, the fund has generated steady returns across all market cycles and emerged as a consistent first-quartile performer by beating most of its peers by a wide margin.
During Neelesh Surana’s tenure (May 2008-May 2018), the fund delivered returns of 16.45% versus the 9.23% of the benchmark index. Even in terms of annual returns during the past five calendar years, relative to the category and the benchmark, the fund’s performance has been truly outstanding.
The fund not only has an excellent track record, but the strategy has done well in containing downsides during bear markets. For instance, in 2011, the fund returned negative 19.64%, much lower than the category average (23.64% loss) and the benchmark (26.95% loss). The manager’s skill in mitigating losses in falling markets is a testament to its assessment of quality companies, which has improved its performance profile on a risk-adjusted basis. The fund’s return on a year-to-date basis has so far been lower than that of the benchmark index and category peers.
However, we believe in the manager’s execution abilities and are confident the fund will bounce back in the coming months.
