By Nesil Staney
Mirae Asset Investment Manager (India) chief investment officer Neelesh Surana is not too worried about valuations, as he believes that there has been some recovery in earnings growth. Surana tells Nesil Staney that there could be a revival in demand—supported by rural growth, falling interest rates, and government stimuli. Excerpts:
What is your stock selection criteria? How do you differentiate yourself?
We follow a disciplined bottom-up stock-picking approach, with a clear focus on quality businesses, and yet available at reasonable valuations. Our selection process rests on three core filters: strong business fundamentals, high-quality management, and attractive valuations. Unlike some peers who lean heavily on macro themes or short-term momentum, we maintain a largely sector-neutral stance and let individual company merit guide our choices. We place strong emphasis on avoiding overpriced stocks, regardless of market sentiments or Fads. Time-tested investing isn’t about chasing trends—it’s about owning enduring businesses with solid moats. Our top holdings currently include large private sector banks, pharmaceutical companies, metals, and consumer-facing businesses—sectors where earnings visibility and long-term growth are firmly in place.
Are stocks too expensive now?
From a medium-term viewpoint, valuations are broadly reasonable, and the earnings recovery which was weak in CY2024 seems to be improving. Particularly, we anticipate mean reversion or recovery in some consumer discretionary areas, driven by multiple tailwinds, that is, easing interest rates, stable rural income on the back of good crop cycles, and supportive fiscal policies like tax cut, etc. In addition, 8th Pay Commission revision in 2026 could also bolster demand. For H2 CY2025, key investment themes include financials and consumer discretionary. The bottom-of-the-pyramid consumer, who has struggled for last few years finally see a revival in demand—supported by rural growth, falling interest rates, and government stimuli. From long term viewpoint, India’s macro story is anchored in three structural pillars: favourable demographics, infrastructure expansion, and the rise of new export engines—both in manufacturing (aided by global supply chain diversification) and services (via GCCs). These drivers are underpinned by reform momentum and prudent fiscal and monetary policies. We remain constructive on India’s structural growth trajectory and view market corrections as long-term buying opportunities.
Many investment managers are flagging caution about mid-cap stocks valuation. While bubbles can be identified, how can investors know their duration?
We avoid generalisations—mid-caps today are vastly different from a decade ago. The largest midcap is now nearly 8x larger than 10 years ago, and 3x over the last five years. This transformation is driven by three key factors: (a) A wave of listings featuring high-quality businesses that don’t yet fall into the large-cap bracket but are sector leaders in their own right. (b) Accelerated formalization of the economy—especially in mid/small-cap-heavy sectors like footwear, retail, healthcare, and building materials. (c) Sustained inflows into midcap mutual funds, which have expanded the investment universe. While not all midcaps are cheap, the breadth of the universe allows us to find quality businesses with sustainable growth. It’s important to distinguish between valuation and value. Though some segments are stretched, broader midcap valuations remain close to long-term averages when adjusted for FY24–FY25 earnings. Quality across mid and small caps has improved, and selective opportunities persist.
Which sectors will benefit most from the supply chain diversification by US MNCs from China to India? How are you playing this theme?
The supply chain shifts particularly “China Plus One” strategy is materially benefiting India, particularly in sectors like specialty chemicals, APIs, electronics manufacturing, and capital goods. Indian companies are capturing global market share as multinationals de-risk their supply chains. We focus on export-oriented businesses with a track record of execution, strong customer relationships, and disciplined capital allocation. Separating structural trends from cyclical narratives is crucial. In this theme, we prefer long-term winners with competitive advantages, not those riding temporary tailwinds. Our portfolio reflects this through positions in contract manufacturers and chemical exporters with clear visibility and strong fundamentals.
Is the India-UK FTA have an impact your portfolios?
We haven’t made any changes specifically because of the India-UK FTA. While such agreements could benefit export-oriented sectors like textiles, spirits, and automobiles, we avoid investing based on policy speculation. Our investment process is bottom-up and driven by earnings visibility. If the FTA brings material benefits to companies in our portfolio, that improvement will reflect fundamentals, and would be one of the many nuances to consider for long term sustainable earning growth
How are future rate cuts priced in banking stocks?
Our banking thesis is not rate-dependent—it’s grounded in long-term balance sheet strength and earnings resilience. For banks, deposit cost is the input, and spreads tend to normalize over cycles. These spreads are more a function of franchise competitiveness than just interest rates. We favour large private sector banks with strong liability franchises, clean asset quality, and healthy return metrics. Even if margins narrow slightly with rate cuts, earnings remain supported by robust credit growth and low credit costs. Such banks tend to deliver consistently across interest rate cycles.
What are your sectoral picks among large, mid, and small-cap stocks?
Which small and midcap sectors would you trim? In large caps, we continue to favour financials and consumer staples. Among midcaps, we see attractive opportunities in specialty chemicals, organized retail, and industrial manufacturing. For small caps, we like hospitals, capital goods, and CRAMS—areas with clear structural growth levers. Recently, we’ve trimmed positions in overheated defence and infrastructure midcaps, where valuations appeared disconnected from fundamentals. We also remain underweight in sectors like power and complex conglomerates with inconsistent capital allocation records. Our approach remains grounded in fundamentals, not thematic chasing theme or size as an important factor.
Are there any sectors where you found low management quality in your due diligence?
Management quality is an uncompromising filter in our investment process. We stay away from companies with aggressive accounting practices, frequent dilution, or promoter pledging. In sectors where, good management is hard to find, we either avoid them altogether or invest only in exceptional outliers. Governance standards and shareholder alignment are critical—compromising here inevitably undermines long-term returns.
Will the increase of AI in asset management open new opportunities; regulatory challenges?
AI certainly adds value in areas like data processing, screening, and risk analytics. However, it cannot substitute human judgment in fundamental investing. Management integrity, capital allocation, and qualitative business insights also remain bit beyond AI’s scope. We use AI as a support tool—not a decision-maker. It enhances efficiency but doesn’t dictate our investment strategy. Regulatory challenges around AI—especially in terms of transparency and accountability—will need careful navigation. Responsible adoption with clear oversight is essential. As with any tool, how you use it matters more than merely having access to it.