Hunting for value in growth-oriented businesses: Mirae's Neelesh Surana

Neelesh Surana, chief investment officer, Mirae Asset Investment Managers. Surana talks about opportunities that have emerged in growth-oriented business post the time and price correction last year

Value stocks did well in 2022 due to favourable risk-reward ratio. However, since the run-up has largely corrected the undervaluation, future upside in these stocks will depend on sustainability of earnings, said Neelesh Surana, chief investment officer (CIO), Mirae Asset Investment Managers. Surana told Abhishek Kumar that opportunities have emerged in growth-oriented business, post the time and price correction last year.

You have completed 15 years at Mirae Asset MF. What are your key learnings during the period?

In the last 15 years, we have witnessed many black-swan sort of events. There was a global financial crisis immediately after the start of our business in 2008. Then came the oil shock, Euro Zone/Brexit crisis, demonetisation and Covid. Even during these troubled times, many businesses did well and created wealth for their investors. So, any uncertainty, be it on the macro front or specific to a sector or company, is an opportunity for long-term investment. Secondly, a well-constructed portfolio is key to avoiding big investment mistakes.

Value stocks are said to have made a comeback in 2022. Do you expect this to continue and will you shift some allocation from growth to value stocks?

Value stocks did well in 2022 due to favourable risk-reward ratio amid valuation divergence. Moreover, a higher interest rate environment does not favour growth stocks. With the surge in stock prices last year, a large part of under-valuation in the value theme is now gone. And going forward, earnings sustainability will be an important factor. Further re-rating will be a lot more stock specific, and will be driven by merit of individual businesses. In our view, value should now be hunted within growth-oriented businesses, many of which have seen a price or time correction.

Have you made any significant sectoral or market cap shift in portfolios lately? Or do you plan any?

We will be looking for sectors where economic recovery is incomplete or there is expectation of benefits from commodity price disinflation. Also, the valuation should be reasonable. Keeping these factors in mind, we are positive on banking, rural consumption, domestic auto and health care. Companies with mass or rural consumption products will benefit from low base and the government’s thrust on reviving rural incomes. Autos are yet to fully revert to normalcy and hence there is potential. With macro uncertainties likely to persist in 2023 as well, health care as a sector should do well, given its defensive characteristics and reasonable valuations.

Do you expect the Budget to bring some good news for the market?

Financial year (FY) 2023 saw a significant increase in tax revenue growth as the pace of formalisation picked up and inflation pushed up goods and services tax (GST) collections. For the next financial year, we expect normalisation in both expenditure and tax revenue growth. The roll back of the extra food ration scheme creates space for other social programmes. Given that it’s the last full Budget before the general elections, we expect momentum in capex and a rise in rural spending.

Given that India's valuations are relatively higher, what are the chances of markets doing well in 2023?

It's difficult to predict yearly returns. From a three-to-five year perspective, India has strong and sustainable drivers for secular growth, and thus, our view on equities is constructive. In the long term, returns could remain in low-teens. Investors should refrain from timing the market and should invest in a disciplined way for the long term. Staggered investment through systematic investment plans (SIPs) should be preferred, given the volatility in equity markets and fair but not cheap valuations.

If FPI money does not start flowing in, how long can the market sustain on domestic inflows?

Over the last one year, FPI flows have been impacted on account of India’s relatively-high valuation compared with other markets, particularly China. But with the US dollar starting to weaken, emerging markets could benefit. New flows to emerging markets could help restrict the current trend of FPIs selling in order to buy into other markets. In the long term, flow both from FPIs and domestic investors should remain a tailwind as money chases growth.