'Market not expensive or in value zone, don't see sharp correction'

How is your team viewing the current market valuations and preparing for possible corrections?

Indian equity markets are trading at their last five-year average, neither expensive nor in the value zone. Consensus earnings expectations are reasonable in the low teens. We don't expect a sharp correction from a fundamental view.

Historically, sharp corrections followed major global events like the Global Financial Crisis and Covid-19. Our ability to predict such black swan events is low, but we're monitoring international developments, especially in the Middle East.

During market uncertainties, we adopt a defensive portfolio. At Baroda BNP Paribas Mutual Fund, We're overweight on Pharma, Consumption and IT sectors, and don't believe in cash calls, barring tactical reasons.

Are index and factor-based passive funds a fad or a lasting investment strategy?

Passive funds are here to stay. They have grown rapidly, with the industry crossing the Rs 10 lakh crore mark. We'll see innovation and more nuanced fund launches across thematic and smart beta strategies. Factor-based strategies provide differentiation from broad index funds, focusing on key variables for stock pricing and developing rule-based strategies to outperform the market.

These strategies add to market efficiency and offer portfolio diversification. However, the Indian market still provides opportunities for active managers to outperform.

Will AI impact your business? How and why?

AI has a significant impact on asset management. It helps in quicker, more comprehensive analysis by processing large amounts of data and co-relating disparate events.

Other applications include consumer insights, targeted marketing, transaction processing and customer service.

Rapid-fire questions

• If your fund house had a superpower for investors, what would it be?
  Change their behaviour to stay invested long-term.
• The biggest mutual fund myth you'd debunk.
  Not a myth but most investors can meet 90 per cent of their needs with just two to three funds, like a multi-cap fund, a balanced advantage fund and a short-term debt fund.
• An unconventional asset class you'd add to your portfolio.
  REITs/InVITs.
• A Bollywood movie that best represents the mutual fund industry today.
  Lagaan. Mutual funds represent the combined power of common investors who have taken on FPIs (foreign portfolio investors) and prevailed. Indian retail investors have stayed the course through volatility, continuing their SIPs and helping the market become aatmanirbhar.

This article was originally published on October 25, 2024.