Recovery in mid-, small-caps can be sharper: Mirae Asset

Despite a sharp rise in mid- and small-cap stocks, Jisang Yoo, CEO, Mirae Asset Global Investments, says investors need to look at the big picture over the medium term. In an interview with Business Line, he says economic policies outlined in the Budget provide sufficient optimism for the market. Edited Excerpts:

After the Budget was presented, the market corrected sharply. Was that an overreaction?

Given the limitation of time and resources, it is a pragmatic Budget. It provides a direction of the Government intent regarding restoring growth, and reducing deficit.

Markets’ disappointment and correction is possibly linked to an overdue correction after the post-election results rally, and unnecessary hype created in anticipation of the Budget. Equity markets have already recovered their losses post-Budget, and as we speak, are close to their all-time highs.

Do you think hiking long-term capital gains tax and the three-year lock-in period on non-equity funds will be a dampener?

Yes, it will impact the industry in a big way, especially FMPs (fixed maturity plans) and short duration funds. However, we are concerned more about investors than the industry. It will be difficult for investors, who had invested in some of these funds assuming a certain tax structure, and on maturity, they will be required to pay more tax. Some of our funds will be impacted, though not materially.

Will you rethink on launching your proposed fund-of-fund scheme after the tax tweak in the Budget?

We will check with our partners before deciding on the future course of action.

Mid- and small-cap stocks have witnessed a sharp run in the recent past? Do you think one should still bet on them?

We remain positive on mid-caps over the medium to long term. Good performing funds, including our own Mirae Asset Emerging Bluechip Fund, have created significant wealth for investors. As macro variables start to look up and earnings outlook will improve, the recovery in mid and small-caps can be sharper.

However, investors should invest with a long-term horizon considering the sharp rally in the mid and small-cap index.

What is your advice to retail investors? Should they invest right now or wait for some cool-off in the next two-three months?

In the near-term, triggers (both negative and positive) are associated with the progress of monsoon, global scenario and oil prices. Monsoon progress will impact food prices, which would have a bearing on fiscal consolidation.

Investors need to look at the big picture over the medium term — the economic policies as outlined in the Budget provide sufficient optimism for the markets.

Although valuations are fair over the long-term, we remain positive as the Government policies will percolate into growth along with downtrend in interest rates. Most retail investors are underweight on equities, and we would advise them to move to equal weight through the SIP route.