'Large caps will stay reasonably attractive in the near term'

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

Over a five to 10-year horizon, we remain highly optimistic about the India opportunity. We anticipate strong double-digit earnings growth, improving profitability and a positive capex cycle. As India transitions from a $4 trillion to an $8 trillion economy, we believe market capitalisation will expand significantly. In the near term, large-cap valuations will stay reasonably attractive; small caps may not be as cheap.

We are preparing in two ways. First, at a broader level, we're guiding investors towards large & mid-cap, flexi-cap and multi-cap funds over narrow sectoral or small-cap heavy funds. Second, we're actively adjusting our portfolios by reducing exposure to overheated sectors and increasing allocations to where we see value. So, we added IT Services earlier this year and are considering selective additions in Consumption.

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

We don't see index and factor-based passive funds as a passing trend. But this isn't a debate of which is better. We believe they're all valuable solutions for consumers, effective tools for investors and essential for AMCs. We aim to offer a comprehensive range of funds. In fact, we're one of the largest AMCs for factor-based funds, with one of the oldest actively managed factor-based fund practices. At Edelweiss Mutual Fund, our balanced advantage, aggressive hybrid and large-cap funds are all factor-based. With the Business Cycle Fund's launch, we're excited about factor-based investing's growth, both in active and passive forms.

Will AI impact your business? How and why?

We're closely observing and exploring AI's potential. It's already impacting the service side and streamlining investing, like automating earnings call summaries or routine analyst tasks. We already use quant models, so seeing how AI further enhances them will be interesting.

Rapid-fire questions

• If your fund house had a superpower for investors, what would it be?
  The ability to focus on the long term without getting caught up in recent one-year performance.
  
• The biggest mutual fund myth you'd debunk.
  First, mutual funds aren't inherently risky; different funds suit different needs. Second, larger AMCs are always better.
  
• An unconventional asset class you'd add to your portfolio.
  Investing in early-stage startups, inspired by my Shark Tank experience.
  
• A Bollywood movie that best represents the mutual fund industry today.
  Swades (2004).

This article was originally published on October 27, 2024.