Not devoid of stock ideas, though markets aren’t cheap: Neelesh Surana, CIO, Mirae Asset Mutual Fund

Swarup: Wherever there is money, we see these things happen, even globally. But at the end of the day this is a fiduciary business and at Mirae AMC, it’s been an unblemished 16 years since inception for us in India on the regulatory side. We consider ourselves extremely fortunate that we have been able to win the trust of somebody else’s hard earned money. That said, we some have basic checks in our framework which we have always practiced and have fortunately not seen any issues so far.

Neelesh: On the investment side, we have a very strong risk and compliance team who provide a lot of guardrails. Technology is very important, particularly on the execution side of trades, providing checks and balances. We have invested in best-in-class technology from much earlier.

Swarup: From a regulatory perspective, we have trustee officer from the trust overseeing us. We have taken this one step forward by appointing a vigilance officer who reports to the board. This will be the first of its kind in the market.

Swarup: We entered the business in 2006-07. Bulk of sales or AUM growth started happening from 2014-15 onwards. The final revenue for an AMC is a function of sales and distribution as well as manpower costs. In 2011, we moved to a full-trail (commission) model, when some of the large players were still on upfront commissions. We had reconciled to the fact that our revenues will be lesser than some of the big players in the industry because of this. That was our business model.

On the manpower front, there is a market price to go by when it comes to remuneration. But rather than setting up physical offices, we approached expansion digitally. So, from that perspective, our manpower is definitely lesser than our competitors and hence it becomes more cost efficient. I think the efficiency that we brought about because of our smaller size, relying heavily on technology and believing that the growth will happen digitally, has led to us being one of the most profitable AMCs in the market.

Swarup: The move does give us the opportunity to get a partner — say, a global brand name into India. We are known as Global X worldwide  — that’s our ETF brand. That’s a great positive. However, the MF Lite regulations may or may not allow us to launch the full suite of passive products. We need to see how it finally shapes up. We want to launch differentiated products within passives. We want to launch a fair amount of factor-based passive funds and own certain ideas. We already own four or five such ideas, which are the only one in the industry. So, if there is restriction to innovations, then it becomes a hindrance. But positives from the move are large. We will definitely assess it.  If there is scope, yes, we’d like to spin off our passive business.

Swarup: Factor indices will have their liquidity issues, but at least on the market cap indices, we are liquid. Mirae Asset Capital Markets is our liquidity provider. While this is just the beginning, finally, volumes will define liquidity for ETFs as in any stock. Today, what used to be a two-crore volume for us on Nifty 50(ETF) is 8-10 crore. Passive folios and AUMs have also increased many fold.

We don’t look at index funds but at ETFs because that’s how we are positioned. We aspire to be an ETF player globally. We feel there is an investor for every category, including ETFs. In debt, where there is no liquidity, we provide index funds. My personal opinion finally converges to ETFs because the distribution asks for some money, which is charged on index funds. While the index fund is a low-cost mutual fund, in ETFs you get further value. Index funds also give only day-end NAV. Given the rise in the number of demat accounts, the opportunity in ETFs is already large. Volumes are rising too, as mentioned above.

Neelesh: The universe has expanded big time in the last five years. Earlier, the universe was closer to 250-300 stocks. It has literally doubled now. At the end of the day, a portfolio has 40-50 stocks. So, even if a large portion is expensive, there are choices outside of it. Secondly, the market at an aggregate level is reasonably valued, though it is not really cheap. What is expensive is a long tail of companies which didn’t move for a decade or so and which participated in this rally — mainly on the industrial side. But it is a very interesting market, where sometime back in this calendar year you had the largest private bank, the largest PSB and the largest NBFC, all trading cheap. Similarly, there are stocks that have seen time and price corrections, especially in the consumer segment. Some pharma stocks also look attractive. What I am saying is that you always get a few ideas, though it is difficult since markets have moved, and flows are bountiful. But I will not say that we are devoid of ideas.

Neelesh:  We have been constructive throughout the period since Covid. The point is that macros are quite good. That said, one cannot talk about macros alone and forget valuations. But, as mentioned earlier, if you dissect the market, valuations are not expensive. We are less than 20 times on forward earnings. This is not something obscene. Some of the large pockets are surprisingly not expensive. They are large in terms of percentage of total market capitalisation, but lower in terms of count. Oil, IT, consumer, large banks are some of the segments that have opportunities. The fact is that if markets have moved by 22 per cent CAGR in five years, earnings have also mirrored the growth. We always tell investors that if they come in with at least a three-year horizon, there is decent money to be made. However, the worry is always oil. While it has not gone up, it hasn’t come down either. It has multiple repercussions on things starting from the current account to inflation. The worry is also on some segments of markets being in a bubble or froth.