New-age firms: Long-term moats, short-term noise

Having been associated with Mirae Asset Investment Managers (India) since 2015, Ankit Jain, Senior Fund Manager - Equity, currently oversees four equity schemes with a total AUM (assets under management) of around Rs 65,000 crore. Among the four schemes, he solely manages the Mirae Asset Midcap and Mirae Asset Multicap funds. In this interview, the senior fund manager of equity shares his outlook on the market. What's driving the current market rally? Is it more about investor sentiment or strong fundamentals? Earnings growth has panned out really well, not only in the last one year but over the last four to five-year period. There's a stark change in the earnings growth trajectory. To give some data points, if we look before the Covid-19 period of around 10 years (2009-2019), the earnings growth in the large-cap segment of the markets was around 6 per cent CAGR (compound annual growth rate), while for the mid-cap segment, it was approximately 8-9 per cent CAGR. However, in the last five years, the trajectory has improved to approximately 20 per cent CAGR across both buckets, largely due to the robust performance of the economy. There has been significant improvement in fundamentals across different sectors, led by government policy changes, regulations, tighter compliance, and more digitalisation. That said, the large-cap segment might have performed in line with the earnings growth, so to that extent, valuation rerating has not been that sharp compared to the mid and the small caps. The mid and large caps have generated a significant portion of their returns by rerating their valuations. Given the current state of the economy, several investors believe that high earnings growth could persist over the medium term (next three to five years), and they are willing to pay the premium. So, to that extent, I think mid- and small-cap valuations have rerated significantly i