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Mirae Asset Mutual Fund: 3 'F's concern India equity market
May 2, 2011

This is a brief outline of the conference call held on 13 April 2011 with Mr. Gopal Agrawal, Chief Investment Officer (CIO) and Co-Fund Manager for Equity Schemes at Mirae Asset Mutual Fund. The article presents an outlook from Mirae Asset Mutual Fund on Indian markets and various products offered by the Fund House.

Author : iFAST Research Team

 Mirae Asset Mutual Fund: 3 'F's concern India equity market

Key Points

  • India growth story to continue in the long term

  • Top three concerns in the short-term term: Fuel, Fertilizer and Food

  • Expected Earnings for India - INR 1250 in FY2011-12 and INR 1350+ in FY2012-13

  • Market upside expected at around 25000-27000 levels in the long term

Mirae Asset is a part of the Asian conglomerate confined to financial markets in various verticals ranging from insurance to equity stock broking, alternative assets, real estate and fund management. At present, it manages around US$34 billion of equity assets and the group has investments of around US$80 billion. It is the second largest investor in Asian markets and among the top five Foreign Institutional Investors (FIIs) in India apart from managing the domestic funds.

Indian Market Outlook

Mr. Gopal Agrawal, Chief Investment Officer (CIO) at Mirae Asset Mutual Fund, is of the view that Indian economy is quite strong and is growing at a fast rate. Although there is no let down on the demand side, there appears to be a few headwinds for India like the rising commodity prices especially, crude oil. Mr. Agrawal opines that there are three main F’s that are a concern for India, namely Fuel, Fertilizer and Food. These three factors may affect the markets, economy, currency as well as balance of payments. Nonetheless, there is very strong consumption and top line growth in India due to rising income, young population and an upward trend in the work force inducing everybody to invest in a market. India is looked upon as a favorable destination and it is a positive sign for a long-term structured investment in India; however in the short term, the rising crude oil prices and growing fertilizer subsidies may create a dent on investment demand from the government of India. The key reason being these rising prices may affect the government budget which may result in reduced spending on infrastructure thereby impacting the markets. Also, the higher commodity prices may result in margin pressure on the corporate India. These are a few factors which may create problems in the short run but on the contrary the top line or the growth side appears to be very strong.

In this backdrop, Mr. Agrawal believes that India will close with the earning of around INR 1250 in FY2011-12 and INR 1350+ earnings in FY2012-13. So, considering this huge growth of 20% CAGR in the next 2 years, markets may not witness a level below 17,000 even in the worst case scenario. The upside however will depend on factors like commodity prices etc. And, if the commodity prices soften, it may have a positive bearing on the interest rates in India. In the good times, the market may trade at around 20-22 P/E multiple owing to the 20% CAGR growth. If commodity prices ease, there is a possibility that markets may trade around 25000-27000 levels but, not in the immediate short term owing to headwinds in the oil market.

“Use any correction in the market as a buying opportunity and closer to 18000 or so, you should have much more allocation to the market because the risk reward is significantly in the favor of the investment for 12-18 months time horizon”, adds Mr. Agrawal.

Product Basket

Mr. Gopal Agrawal enumerated the following fund offerings from the fund house:

Mirae Asset India Opportunities Fund was the first fund launched by the fund house just when it started its India operations in July 2008. It is the flagship fund which is primarily a large-cap diversified fund but is more like a multi-cap fund, where 70% is invested into large-cap and the balance 30% is concentrated in mid-caps, with a bias to large-caps. The fund has completed 3 years recently in April and is rated CPR1 by CRISIL for last three consecutive quarters and is a consistent performer in the large-cap category. Among the 200 odd funds, this fund stands among the top 5 during the same period. In the last three years, except for the two months, this fund has consistently been in the 1st quartile. The fund is very stable and it has generated good returns over a period of time, on an average, the fund has delivered around 22% CAGR returns over the last three years.

Mirae Asset Emerging Bluechip Fund invests in midcap companies; the fund completes 1 year in the month of May and during this period the fund’s performance has helped the fund top the mid cap category. The fund follows the bottom-up approach of investing and it focuses more on the cash flows which has helped the fund perform even during the downturns.

*Mirae Asset Global Commodity Stocks Fund was launched in July 2008 and is close to completing three years. The fund invests around 70%+ outside India into Emerging markets and around 30% into Indian commodity companies. It is not a fund of fund but, it invests into many companies across the emerging world like Brazil, Russia, Korea, Australia, Hong Kong and Indonesia. The fund has generated around 37% absolute return since its inception.

**Mirae Asset China Advantage Fund is a fund of fund which invests through its mother fund. It has been in existence for a year and it has managed to generate 18% absolute return last year. On an aggregate basis it has performed better than the Indian domestic funds. From February 2010 to February 2011, the fund assets have grown substantially from 25 crores to around 100 crores.

Mirae Asset India-China Consumption Fund invests 65% into Indian consumption stocks and the balance 35% is invested into Chinese consumption stocks. This fund is recently launched in 2011.

* Mirae Asset Global Commodity Stocks Fund delivered 12.30% CAGR return since its inception.
**Mirae Asset China Advantage Fund delivered 18.30% CAGR return in the last 1 year.

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