Time and again we have seen that the markets tend to react more to the recent news flow

What is your outlook on Indian economy? When do you expect recovery from the slowdown caused by COVID-19?

As you would appreciate, the outlook would largely be function of the COVID situation. While in some parts of the world we are seeing the 2^nd wave, we also reading encouraging new flow on the vaccine development.

From an investor point of view, we believe the three key macro factors which matters the most (1) Interest rates, (2) currency and (3) oil prices are currently in favourable zone. Also, monsoon is trending better and will support the rural economy in India.

Early trends of economic activity post the lifting of lockdown are positive, however it needs to be seen how much of this is pent up demand and how much is sustainable. The supply side is gradually coming back to normalcy, while demand will take some time to review, in our view.

The interest rate remains an important lever for recovery as it impacts the equity markets in three ways - (a) it helps improve demand in rate-sensitive sectors, (b) helps improve cash flows, and (c) P/E multiples improves with fall in interest rates.

India’s 3-5 year outlook is encouraging as the benefits of various government reforms over the last few years would start to accrue. However, near term performance will be function of the inter-play of COVID situation and restoration of normalcy in the economy.

What is your near and medium term outlook on the stock and bond market?

Time and again we have seen that the markets tend to react more to the recent newsflow / events. If we do the DCF valuation, then the current pandemic will impair cashflows for say 1-2 years and rest of the value will largely sustain. Thus, in the current scenario, we believe that the fall in intrinsic value of many businesses is much lower than the stock price correction.

As always it is difficult to predict the near term and markets can correct or consolidate given extended timeline of recovery from the pandemic.

As an investor, we believe that any price correction more than the value correction provides investment opportunity.

We expect interest rates to remain low in the near term with continued policy tailwinds from RBI

Mirae Asset Equity Hybrid Fund has recently completed 5 years since launch. The fund is one of the best performers in its category in the last 3 years. For the benefit of retail investors please describe the broad investment strategy of this fund in terms of asset allocation?

As per the mandate, we can invest 65-80% in equities and 20-35% in debt and money market instruments. We have been keeping equity allocation at about 72% (+/- 3%) and the remaining in fixed income. The investments in equities are predominantly in large cap companies.

Our attribution analysis suggests that at an aggregate level, alpha generation has been from stock selection, rather than on sectoral calls. In the fixed income space, investing in high quality debt instruments with active duration management in an easing interest rate cycle, has led to a debt portion adding to the performance of the fund.

I would like to emphasize that our approach is team and process-oriented. We follow a bottom-up approach in our investing. We prefer businesses with large growth opportunities, good returns on invested capital, competent management, and importantly, reasonable valuation.

In a nutshell, we seek to construct a diversified portfolio, which could handle mistakes and deliver decent risk-adjusted returns.

What is your stock selection strategy in current market conditions?

The pandemic situation is still evolving and will keep the markets volatile. From the stock selection and portfolio build perspective, we follow a two-pronged approach – it is a sort of barbell strategy. First priority is to buy high quality businesses, which have now corrected. The other spectrum we are also participating in “deep in value” businesses.

We would continue to focus on investing in strong businesses, delivering better growth and superior RoCE, run by strong management and available at reasonable valuations.

As stated earlier, key macros elements seem largely in favour with respect to low interest rates, forex reserves, current account situation, recovery in rural markets, etc. These factors should support recovery as and when it happens.

What is the fixed income strategy of this fund?

The debt Strategy is largely divided in two parts. The core part, is managed on a relatively static basis and is typically invested in govt. securities and corporate bonds. For the second part, which is more tactical, it a more active strategy is adopted with appropriate changes in duration in line with the outlook on interest rates. Thus, the aggregate strategy provides in a balanced and consistent manner, benefit of both a directional return in line with underlying market environment as well as that of an active management strategy.

How should investors approach this fund? Who should invest and what is the recommended minimum investment tenure?

We think this is a beautiful product which gives an investor the exposure to equity and debt in one offering. Also, from the taxation point of view it is favourable, as it gets taxation of equity product.

We believe that the asset allocation is the key to investment returns. We have been allocating ~72% (+/-3%) towards equity and hence with market performance, the allocation gets automatically balanced.

Investors with moderate risk appetite who don’t want very high exposure to equity should definitely consider this product.

We would advise to look at this product from an investment time frame of atleast 3 years.

Overall, we believe that markets valuations are reasonable from a long-term view. Investors should continue with SIP during the ongoing volatility.

Mutual fund investments are subject to market risks, read all scheme-related documents carefully.