- Large-cap oriented equity fund
- Holds about 15-20% in mid-cap and small-cap stocks to enhance returns
- Scores high on consistency and risk-adjusted returns
- Keeps losses in check during market falls
- Any investor with a 5-year plus horizon
Mirae Asset India Equity (earlier Mirae Asset India Opportunities) ticks all the boxes that characterize a good equity fund. One, it stays ahead of the market and peers across timeframes. Two, its risk-reward payoff is among the best in its category. Three, it is able to keep losses in check during correcting markets.
The fund can move across market capitalisations, but it has usually been biased towards large-cap stocks. In the past year, large-caps have formed over 80% of its portfolio. Against both the large-cap category and the diversified category, Mirae Asset India Equity comes out on top across performance metrics. Its 5-year annualised return of 20.8% puts it well ahead of the large-cap category’s 15.4% and the diversified category’s 17.8% and the Nifty 500 TRI’s 16.3%.
Its consistency, growth-at-reasonable-price approach to picking stocks and large-cap tilt make it suitable for core portfolios of any investor with a long-term horizon.
Staying ahead of the pack
Given Mirae Asset India Equity’s earlier diversified tilt and current large-cap classification, a comparison to both categories can draw a sharper picture of the fund’s performance. Against these two categories, the fund has beaten the average all the time when rolling 1-year returns over 3 years and 3-year returns for 5 years. That is, in both shorter-term and longer-term periods, the fund has stayed ahead of the pack.
Similar rolling returns against the tough Nifty 500 TRI index have the fund beating the index virtually all the time. Mirae Asset India Equity’s own benchmark is the BSE 200, which it also comfortably beats consistently. The fund even scores near the top among diversified and large-cap funds when looking at the ability to deliver above-index returns (measured by the information ratio, using the Nifty 100 TRI as the benchmark). The fund’s volatility, though, is on the higher side. This is partly due to its mid-cap history and because it makes small but frequent changes to stock weights in a large portfolio. But the fund still does well on risk-adjusted returns in both large-cap and diversified categories, indicating that the risk taken has delivered commensurate returns.
Further, Mirae Asset India Equity has the distinction of being among the few funds that both, keeps losses in check in correcting markets and delivers market-plus returns in rising markets. Most funds manage either, but not both. This is borne out by the capture ratio (which measures how much of an index’s movement the fund captures) as well as looking at returns in each market cycle.
Portfolio and strategy
Mirae Asset India Equity primarily tries to identify stocks with a higher return on equity, good cash flows, higher market share and so on and takes a longer-term view on stocks. This translates into a growth-based stock picking approach. However, the fund also looks for reasonable valuations to ensure that it doesn’t pay too high a price for the quality. It is also adept at weeding out underperformers, which keeps portfolio downside in check.
For example, the fund cut holding in midcap stocks gradually through 2016 given rising valuations and moved towards the more reasonable large-cap segment. In stocks, the fund moved away from NBFC stocks barring a couple; NBFC valuations have been steadily rising over the past two years. The fund instead holds mainly private sector banks, whose share has been rising through the past year.
The fund pruned exposure to energy, primarily by cutting down on the underperforming Indian Oil and retaining the more promising Reliance Industries, Petronet LNG, and GAIL. Other sectors seeing cuts include pharmaceuticals and media.
Banks is one sector where the fund has stepped up holding, unlike most peers which have moved underweight to the sector. The fund, though, has stuck to private sector banks barring State Bank of India. Many of its bank stocks, such as HDFC Bank, IndusInd Bank, and SBI have been a part of the portfolio for several years now. The high bank holding is partly why the fund’s year-to-date returns and 1-year returns look like they are paling, especially in comparison to the Nifty 500 TRI index and peers which are underweight on banking.
The fund also added to consumer stocks, including durables, FMCG, and textiles. These, together with a good share of automobiles provide a sizeable consumer exposure for the fund. While this gives the fund a more consumer tilt, the fund does have a significant exposure to stocks that can benefit from increased investment and government spending, including infrastructure, steel, metals, and cement. Here too, stocks such as Larsen & Toubro, Adani Ports, and Tata Steel have been a part of the portfolio for over 2-3 years and have already delivered well.
The fund’s AUM stands at Rs. 6,612 crore. Neelesh Surana is the fund’s longstanding manager since its inception in 2008. Post SEBI categorisation, the fund is likely to slot into the multi-cap category and therefore should not see a change in strategy.
FundsIndia’s Research team has, to the best of its ability, taken into account various factors – both quantitative measures and qualitative assessments, in an unbiased manner, while choosing the fund(s) mentioned above. However, they carry unknown risks and uncertainties linked to broad markets, as well as analysts’ expectations about future events. They should not, therefore, be the sole basis for investment decisions. To know how to read our weekly fund reviews, please click here.