ETMarkets Fund Manager Talk: This asset manager sees good investment opportunities across 3 key areas

Holding a bullish outlook for India, Mirae Asset Investment Managers sees good investment opportunities across three key areas that reflect the domestic growth prospects, capital investments, and economic formalization.

“India currently boasts the fastest-growing economy globally, with a GDP of $3.5 trillion and projections to become the fifth-largest economy soon. With all four balance sheets - banking, housing, government, and corporate in a good shape, the growing economy presents numerous opportunities for midcap companies,” said Ankit Jain, senior fund manager, Mirae Asset Investment Managers (India).

Given these factors, Jain sees significant opportunities in the consumer and financial services sectors. Edited excerpts from an interview with ETMarkets:

What’s the fate of mid-cap and small-cap stocks after the recent stress test results released by AMCs?

Ankit Jain: The results of the stress test for our midcap fund was quite reasonable with 50% portfolio liquidation within 8 trading days. We prioritize maintaining a well-diversified portfolio and consciously avoid heavy sector allocations.

There’s a lot of hullabaloo over whether valuations of small-cap and mid-cap stocks are stretched or not? Which side of the argument are you backing?
Ankit Jain: During the last 12 months, the Nifty Midcap 100 index has surged by 59%, outpacing the Nifty Large Cap index by 20% over the same period.

We observe a robust earnings momentum within the midcap segment, buoyed by overall economic expansion and market share gains driven by the formalization of the economy.

Government initiatives such as Make in India and Production Linked Incentives (PLI) further contribute to positive earnings dynamics across various sub-segments.

Given these factors, we maintain a favorable outlook on the Indian midcap space from a long-term perspective, despite potentially elevated valuations in the near term.

The 1-year forward price-to-earnings (P/E) ratio for Nifty stands at 22.5x, while for the Midcap 100, it stands at 24.5x, representing a premium of approximately 12-15% over their respective 10-year averages.

This premium is supported by robust earnings growth expectations for FY25/FY26 (14% CAGR for Nifty 50 Index and 21% CAGR for Nifty Mid-cap 100 Index).

Although valuations may appear rich compared to historical norms, we believe they are justified by the optimistic earnings growth outlook.

Some of the big fund houses have seen an increase in the cash levels for the second straight month in February. What’s your current cash position?
Ankit Jain: Typically, we do not take cash calls in our fund, maintaining a fully invested approach at all times. Our current cash levels consistently remain below 2% of the assets under management.

How does FY25 look for India Inc from an earnings perspective and investment opportunity?
Ankit Jain: Given good macros and broad based improvement in fundamentals across different sectors, we expect good broad based earnings momentum to continue going forward.

Which are the domestic themes that you think aren’t still overdone and hold potential to do well in the near future?
Ankit Jain: We see good investment opportunities across three key areas:

Domestic Growth Potential: India currently boasts the fastest-growing economy globally, with a GDP of $3.5 trillion and projections to become the fifth-largest economy soon.

With all four balance sheets - banking, housing, government, and corporate in a good shape, the growing economy presents numerous opportunities for midcap companies.

The government's targets to increase income levels, combined with favorable demographics for a long time and policies aimed at boosting the workforce, contribute to long-term growth prospects. Given these factors, we perceive significant opportunities in the consumer and financial services sectors.

Manufacturing Potential: Manufacturing sector currently constitutes 14% of GDP and India's share of exports is low. Initiatives like "China+1" and localization efforts are expected to drive manufacturing growth.

Investments in logistics to reduce costs, coupled with government measures to lower interest rates, aim to enhance the competitiveness of the manufacturing sector. India is poised to offer a competitive advantage in manufacturing for the next two decades, with incentives provided to both domestic and foreign companies.

Economic Formalization: Reforms aimed at formalizing the economy have been instrumental in benefiting mid-cap and smaller companies. These reforms have created a conducive environment for businesses, leading to increased opportunities and growth potential within the mid-cap segment.

By focusing on these areas of opportunity, we aim to capitalize on India's growth trajectory.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)