Mirae Asset India Opportunities Fund: Invest ::Business Line

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Overweight on India, Asia in terms of equities: Bill Belchere, Mirae Asset Securities (ET)

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In an Interview with ET NOW, Bill Belchere, Global Chief Economist, Mirae Asset Securities talks about the Indian and global economy, factors concerned and the outlook. Excerpts:

ET Now: Many global traders are now engaging in risky bets. From emerging market equities to copper, from gold to coco and orange juice, just about everything and anything has appreciated this year. Do you think the risk-on trade, which is currently on will pay off?

Bill Belchere: I think so. We are set up for the next couple of months for this to continue and I will tell you why. Number one - the real sector data is surprisingly on the upside. If we were looking at things like new export orders at the global level, those are picked up over the last couple of months that has been important number one, so we are getting upside surprises to the real data.

Number two - we are getting global liquidity. The world is now in reflation is number three and almost all the important parts of the world are joining in. Reflation was orchestrated by the US QE1 and QE2 but now late last year, we had the Fed put into place its swap programs with other central banks.

The ECB of course introduced its long-term refinancing operation, which is a three-year scheme. What we have seen is central bank liquidity beginning to move up. Then you look at China and India, both have taken measures to ease liquidity in their economies. We are getting interest rate cuts across Southeast Asia and Asia more broadly in emerging markets.

We have got liquidity and the real economy moving in our favour now and so cyclical upturn has taken over. It is the new compared to the old news of the secular and fundamental or structural problems in the global economy, which have not gone away but are at least has been put on the backburner for now. We think this is going to last through April at least.

ET Now: Would you be increasing your allocation to India and where does India figure in your emerging market allocation in terms of equities?

Bill Belchere: Clearly we would be overweight for Asia and overweight for India in that context. We like what we see in India or what we think is coming for India. Number one is that we know inflation is falling and we think that process will continue, and could be helped out by the competition policy announcement in March.

Number two is that the RBI has already begun to ease a little bit cutting its reserve ratio but we would expect at least a 150 basis points in interest rate cuts over the course of the year and the tone of the data, the real sector data.

Some of the other data looks to us like its bottoming here, so by the first half of the year India would have bottomed and would be looking to something much better in the second half and remember the stock market is supposed to be a discounting mechanism for the future and the future looks a lot better for India right now.


ET Now: At the time when the US economy is growing at a rate of 2.8%, US unemployment rate has come down to 8.3%, US economy is creating fresh and new jobs. Why is the US Fed still singing the song of a QE3?

Bill Belchere: Why they are doing that is they are saying that remember what we are is like being on a seesaw. What I was describing to you is now the short-term uptick in the cycle, which is taking over investor sentiment, and it has put off QE3 but they are still talking about a lot of debt and de-leveraging to go.

At any point what we have seen is once you get into the end of these reflationary periods, the economies in the markets have crashed and need to pick up again. I do not think they are confident enough to think this time we are going to escape because remember 3% growth is still very weak for the US coming out of the sort of recession we had had.

ET Now: You talked about how the second half of 2012 is going to be the outperforming part for Indian equities. Does it seem like for the next 2-3 months the rally will continue or do you think, it is time to book profits for now and then again deploy money once we form a bottom?

Bill Belchere: I am an economist by training, since I have made a little money, I would probably be reducing a little bit right now but my certainty is that the Indian market would end up about 30% higher for the year. You are right.

Whenever you have seen a run this quick, you have to be a little bit hesitant about your timing and when you want to get involved and the way we have drawn the global economy where we think there would be a couple of good quarters followed by a couple of difficult quarters.

It means you have to be much more tactical and when you have seen the rupee come in from 53 in the middle of December down to 49 now, those are very quick moves but we think these are moves that are going to continue. But we would expect some back off as this process plays out but if you are asking me point to point, we are going to be up about 30% in India by the end of this year.


ET Now: Given the tensions in Iran, where do you see prices heading for crude and what will be the increased burden on India's economy?

Bill Belchere: What you are going to see here is that oil prices pop up a little bit as we have seen after every reflationary period, we have an average of the year for $100 a barrel but we could move up a bit above that during this period of time where the global economy looks a bit stronger. I do not think it is enough to derail the India story.

I guess what is getting people's concern is the potential for hostilities between Israel and Iran and that is affecting the market in creating a spike, which obviously would take all this feel good that I have been talking about, that I am expecting over the next couple of months and if we go 'poof' very quickly.

ET Now: Is there any sector or stock specific story when it comes to India that you track or like or dislike sectorally?

Bill Belchere: As an economist, I do not really do the strategy side of things but as an economist, if you are calling for greater liquidity, cutting interest rates and things you would expect your interest rate sensitive sectors to pick up, so your consumer durables, your highly cyclicals, your steel, autos, you would expect all those to be moving up in this sort of an environment. Also your banks should do okay as well.

ET Now: How is the economist Bill Belchere planning to invest his personal money for the year 2012?

Bill Belchere: That's a fair question. I have been putting a lot of it into emerging markets. Remember I am not under the pressure of people like you watching the show who may be investors for big asset management companies and have to get their weekly readings about how they have done or their monthly reading.

I can take a year-long perspective and my feeling is that emerging markets will be up at least 30-40% this year in dollar terms. Right now I am going into the higher beta markets that put me into places like Korea and Taiwan early in the year along with India.

Later in the year when I think that some of the good news will begin to be priced in and people begin to anticipate that good news and we might get some disappointments, I want to be back in the bigger, more domestically oriented markets that seem to decouple to some extent from the fortunes of the global economy. I would include India, Indonesia and they are prominently also waiting on China to join onboard.

Mirae Asset India Opportunities: Invest: Business Line

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Investors looking for a fund that would identify opportune moments to invest in the right sectors and who are willing to take that extra bit of churn in their portfolio for higher returns can consider investments in Mirae Asset India Opportunities. Over a three-year period, the fund has clocked a compounded annualised return of 16.2 per cent and outpaced its benchmark BSE 200 by 12 percentage points and also bettered funds with a similar theme over the above period.

Although the fund watches out for opportunities in sectors based on the economic conditions, it is equally vigilant in protecting the portfolio during market corrections without moving into cash. Its ability to stay invested irrespective of market movements reflects the fund's conviction in its stock selection.

Its strategy of taking active calls in sectors may depend largely on the fund manager's ability to identify sector trends well ahead of market. Active portfolio management, though, is likely to push up cost for the fund although returns may compensate for the same. . Although the fund invests predominantly in large-cap stocks, given its investment strategy, it may be a good diversifier in the non-core portfolio.

Performance: The fund, over a one-year period, generated an absolute return of 8.5 per cent and outpaced its benchmark BSE 200 by 7.5 percentage points. In the past six months, when CNX Nifty and BSE 200 lost close to 10 per cent of its value, Mirae Opportunities' NAV corrected by 4.6 per cent. The fund's performance could have been even better had it upped its holding in the defensive and top performing consumer non-durables. For a good part of the last one year, the fund allocated less than 4 per cent of its assets to the sector and only recently upped its stake in the sector to 8.3 per cent of the portfolio.

Portfolio Overview: As of May, the fund held 50 stocks and the top ten stocks accounted for 37 per cent of the assets. The top three sectors — banks, software and consumer non-durables — together accounted for 36 per cent of the portfolio. Although the fund has not actively churned stocks in the portfolio, it, nevertheless, diluted its holdings in the stocks. In the past few months, it increased its holdings in Bharti Airtel, Infosys and Tata Steel. The fund is managed by Mr Gopal Agrawal and Mr Neelesh Surana.

Interview with ARINDHAM GHOSH, CEO, MIRAE ASSET GLOBAL INVESTMENTS (INDIA): Business Line

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Money has to chase growth. If you look at US or any other developed market, while it may look good in percentage terms, it isn't as exciting in absolute terms. ARINDHAM GHOSH, CEO, MIRAE ASSET GLOBAL INVESTMENTS (INDIA)

Emerging markets, including India, have corrected significantly from their highs, but that may not remain so for long. Mr Arindham Ghosh, CEO, Mirae Asset Global Investments (India), feels that it may only be a matter of time before funds begin to flow back into the emerging markets. In an interview with Business Line, he shares his insights on the growth potential of emerging markets. Having launched an India-China Consumption Fund, he also talks about the growth potential of the consumption sectors in the two countries.

Excerpts:

There's been a flight of capital from the emerging to developed markets. Do you think this is the right time for Indian investors to further increase their emerging market exposure?

Globally, we have seen funds flow back from emerging markets to developed markets. It has happened due to a build-up in risk aversion, largely because of the geopolitical escalation of tension that we've seen in West Asia and Gaza strip. But, more importantly, the pull back has been due to the kind of recovery from the bottom we have seen in the developed markets.

The US market obviously hit the bottom and has bounced back. But the clear belief and conviction (also of investors in that part of the world) is that it is only a temporary phenomenon.

It, therefore, is probably only a matter of time before we see funds flow back into the emerging markets. Primarily because everybody is sitting on overweight position on the US markets.

Going forward, rebalancing will begin, where allocation would happen to the emerging markets. Money has to chase growth. If you look at US or any other developed markets, while they may look good in percentage terms, it isn't as exciting in absolute terms. So this is only a temporary pullback.

But how big a threat would inflation be?

From the European debt crisis to the current fear of inflation in emerging markets that we have seen is probably due to the US belief that the right policy prescription for it is quantitative easing. They believe that by pumping in money, the country would come out of the recession or de-growth it has seen.

But what it has done is flooded the emerging markets with liquidity. This, in turn, has ramped up the prices. Obviously, at some stage, this began to bite into other assets. But having said that, inflation in emerging markets is also something we have to learn to live with.

Whenever countries move from a ‘developing' to ‘developed' status, there is going to be inflation. So, beyond a certain point, investors know that inflation is only being exported into emerging markets. Their focus, therefore, will be on growth. And in that, we can't have two superior growth economies than China and India.

Do Indian markets look attractive after the recent correction?

Indian markets have already corrected by over 18 per cent from the top. Stocks are available at good value. I think, at 15 times, we are valued well. While India has always commanded a bit of premium, I think that we have a real positive surprise on the fiscal deficit front.

At 4.6 per cent, foreign investors will soon start building on their weights on India.

My sense is that it is already kind of starting to change in terms of allocation of weights. We just have to give it some more time from an institutional investors' point of view.

How different are the consumption trends in India and China?

The per capita income in India has doubled in the last five years. The general belief is that the next doubling up will happen in far lesser a time. And when that happens, it would have a wider cascading effect across different sections of the society in terms of wealth creation.

We are already seeing some of that now, with savings rates, after many years, beginning to move up. People now have higher disposable income in hand. Over 60 per cent of the population is going into colleges and universities now. And when this 60 per cent gets into work force, they will drive consumption. India, therefore, is at an inflection point in the J-curve (in consumption).

China in contrast has a higher per capita income. For a vast section of their population, the consumption of basic goods and services has already happened. They are, therefore, now moving into the luxury segment.

Take the case of BMW, the ultimate luxury car in automobiles. China has sold more than 1.2 lakh units last year, while India, in comparison, is struggling at 6,500 units. Even in terms of household appliances, the multiple in terms of consumption is far higher in China.

What will also help the consumption theme in China is the favourable thrust from the Government. In their latest budget, the government has hiked the minimum wages by 15 per cent across-the-board and has promised to build six million dwelling units each year for the next five years for the weaker sections of society. So, consumption would be the country's next driver of growth for the next many years, as it is a structural and behavioural shift.

Considering this, there are many consumption-related stocks, which are today available at throwaway valuations in China. So, the possibility of generating a higher alpha is much more in this particular product.

How will your new fund play the consumption theme?

The fund's investment theme will not be confined to just the consumption sectors; it will extend to sectors such as telecom, financials, realty, healthcare, utility, media, auto, and so on.

Basically, the fund's investment universe would extend to all the sectors that touch either consumption or the consumer.

It would, therefore, allow the Indian investor to participate in the two fastest growing economies of the world, and within that to get into the very engine of growth, which is consumption.

Oil India:: Top line at INR24bn: up 55% q-q and 14% y-y:: Mirae Asset

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2Q11 Preview: Back on track
We expect Oil India to report a strong set of 2Q numbers on 12 November after market close. We expect a 62% q-q surge in net profits thanks to substantial reductions in the fuel subsidy burden and a 133% increase in natural gas prices. After getting de-railed by a longer-than-expected shutdown at its anchor customer, Numalighar Refinery limited (NRL), last quarter, Oil India is back producing at all-time high levels. We believe the stock is attractively priced following the 11% correction. Mirae will be hosting Mr. Narendra Bhalla, Executive Director of Corporate Affairs, for a post-results road show in Hong Kong on Wednesday, 17 November,2010.