Ideal time for investors: According to Miraes Swarup Mohanty, 2025 is poised to be a year of significant accumulation opportunities
Ideal time for investors: Swarup Mohanty, Vice Chairman and Chief Executive Officer of Mirae Asset Investment Managers (India), believes that the Indian equity market, which has been on a downward trend for several weeks, has now reached a more reasonable level with a higher margin of safety compared to the previous year.
Mohanty predicts that 2025 will be a year of accumulation, where asset allocators will benefit while market timers may face losses. Mirae Asset Mutual Fund, the ninth largest fund house managing assets worth nearly Rs 2 lakh crore, recently launched a small-cap fund, making it the last major fund house to do so.
In an interview with Moneycontrol, Mohanty discusses the reasons behind launching the small-cap fund, his expectations for the Budget, Indian equities, the ongoing earnings season, and the market sectors where he sees value. Here are some key points from the interview:
Despite the recent market correction and more attractive valuations, Mohanty believes that the markets are not yet cheap. The NSE 500 Index has fallen by almost 14 percent from its highs, but it is still up by around 40 percent over a two-year period.
While there is a global economic slowdown and a decline in earnings and urban demand in India, Mohanty views this as a natural part of the economic cycle. He notes that the urban slowdown follows a period of sustained growth and should not be a cause for concern. Market reactions to such events are to be expected.
In times of overbought markets, the outflow of easy money can help determine the true market bottom. Mohanty emphasizes the importance of understanding the behavior of global leaders and their economies in navigating the current market conditions.
Investment firms like ours, which have maintained a diversified portfolio over the past two years and avoided overexposure in certain areas, may have lagged behind in returns due to the disregard for risk. However, we are now witnessing a shift towards a more balanced approach. The Nifty 50 is currently trading at 17 times the FY27 EPS, indicating a level of rationality in the market. As a result, we hold a positive outlook on the market.
Will the trend of earnings downgrades persist?
At present, there are no indications suggesting a reversal in the trend of earnings downgrades. In the past two years, our economy has heavily relied on the central government’s capital expenditure. Therefore, the upcoming budget holds significance as it will shed light on the government’s capex plans. We anticipate a gradual increase in private capex in the future, although it may not happen immediately due to capacity utilization levels remaining below 75 percent. The energy and power sectors are exceptions, with capacity utilization exceeding 75 percent due to government investments. Overall, our capacity utilization remains below pre-COVID levels.
Are there any sectors currently offering attractive valuations?
Opportunities abound in the market, with several quality companies now trading at favorable prices. We continue to identify promising prospects on a daily basis, and India is poised to maintain its position as the leading market for public issuances for the next couple of years.
I believe that moving forward, core sectors will regain importance in the market. Growth drivers such as consumption and infrastructure, both digital and physical, remain strong. There are some banks available at attractive prices, and the healthcare sector is expected to continue performing well. In my view, the traditionally less exciting core sectors will begin to gain prominence once again.
In 2025, smallcaps have experienced a more significant correction compared to largecaps. How should investors approach this trend?
Over the past two years, a significant portion of mutual fund industry inflows has been directed towards smallcaps through SIP investments. Despite the recent decline in this segment, there is now a consistent buyer for these stocks, which was not the case previously. In the past, a downturn in smallcaps would lead to a sharp decline, but now there is a monthly buyer in place. This shift in investor behavior may not follow past patterns, but it will be tested over time due to the substantial SIP inflows from retail investors.
Mirae India MF did not previously offer an active smallcap fund but has now introduced one. What prompted this change?
We have always emphasized the importance of having a robust infrastructure in place before launching any fund, especially a smallcap fund. When managing a smallcap fund, having a differentiated backend, from analysts to fund managers, is crucial. We decided to launch this fund when Varun Goel, the fund manager of Mirae Asset Small Cap Fund, joined our team. His career trajectory has been focused on this side of the capitalization table, making him a valuable addition to our team.
Do you believe that the active side of fund management will become more important in the future?
As asset managers, we remain neutral towards passive or active strategies. We are confident in our ability to outperform the benchmark through our active management, while also offering passive funds at a reasonable cost with minimal tracking error. I am privileged to work alongside a fund management team that is indifferent to passive launches, recognizing that this segment of the business will thrive on its own merits. With the market expanding, there is room for everyone as investor preferences and portfolios continue to evolve.
The current landscape is particularly intriguing. For the first time in my thirty years in the industry, three generations are simultaneously investing in the market. This generational shift brings about unique challenges and opportunities, as younger investors have distinct preferences, risk tolerance, and investment approaches. To cater to this demographic, we anticipate a rise in high-risk products to capture and retain the interest of this new generation.
What policy changes does the mutual fund industry hope to see in the upcoming Budget?
Given the current negative sentiment in the country, the government has an opportunity to enact significant changes this year. With no imminent elections, there is scope for a substantial agenda to be implemented.
Last year, many were anticipating the rollback of long-term debt taxation, which unfortunately was not addressed. The removal of the indexation benefit came as a surprise and was met with disappointment. Indexation plays a crucial role in educating the public about the time value of money, and its reinstatement in the upcoming budget is eagerly awaited.
What other policy measures can be expected in India’s quest to become a manufacturing powerhouse? It is crucial for the country to increase allocations towards healthcare and education if it aims to achieve this goal. A significant portion of the population being malnourished, as is currently the case, poses a major obstacle to India’s manufacturing ambitions.
Education plays a vital role in shaping a skilled workforce that can quickly adapt to new technologies and processes. China’s success in becoming a manufacturing giant can be attributed to its heavy investments in healthcare and education. India can learn from this example and prioritize these sectors to drive its own manufacturing growth.
For retail investors, the current market presents a wealth of opportunities. Stock prices are becoming more reasonable, offering a favorable environment for investment. The safety margin in the market has also improved compared to previous years, making it an ideal time to accumulate assets.
In terms of investment options, the debt market is showing promise due to potential interest rate cuts. Gold also remains a favorable asset. This year presents an excellent opportunity for asset allocation, with prudent allocation and accumulation likely to strengthen portfolios.
A word of caution for investors: avoid trying to time the market by constantly redeeming and reinvesting. Long-term portfolio growth is best achieved through market appreciation. Stay focused on accumulating assets in 2025 to maximize returns and avoid falling into the trap of market timing.
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Disclaimer: This blog post is for informational purposes only and should not be considered financial advice. Investors should conduct thorough research and consult with a qualified financial advisor before making any investment decisions.