'Markets have continued to go up due to investor exuberance'

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

Right now, our valuation models are telling us that equities are not cheap and, thus, indicate that asset allocation is the best approach for investing. For the last two years, markets have not become cheaper. Instead, they have continued to go up. Given this, asset allocation has become even more important.

There is a fair amount of retail and investor exuberance, which is a source of risk at this point. It is less of a fundamental problem than a retail investor exuberance problem. By spreading investments across asset classes, which can also be achieved by investing in multi-asset and hybrid strategies such as a balanced advantage fund, investors can mitigate the risks associated with overvalued markets and capitalise on opportunities during market corrections.

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

Several factors drive the popularity of index and factor-based passive funds in India. In addition, the regulatory push for cost-efficiency and transparency further supports the rise of passive funds. Institutional adoption, with large investors like EPFO (Employees' Provident Fund Organisation) allocating assets to passive strategies, also drives demand. These factors indicate that index and factor-based funds are here to stay and will play a crucial role in India's evolving investment landscape. They are set to complement active funds, offering diverse and cost-effective options to a growing investor base.

Will AI impact your business? How and why?

AI presents numerous opportunities for innovation and efficiency across customer service, back-office operations and portfolio management. Yet, it's essential to approach its implementation with a strategic mindset. We are investing in research and development to ensure our AI systems are robust, ethical and aligned with our commitment to delivering long-term value to our investors.

Rapid-fire questions

• If your fund house had a superpower for investors, what would it be?
  Asset allocation strategies.
  
• The biggest mutual fund myth you'd debunk.
  The idea that mutual funds are only about equity funds.
  
• An unconventional asset class you'd add to your portfolio.
  I stick exclusively to mutual funds for my investment portfolio.
  
• A Bollywood movie that best represents the mutual fund industry today.
  I believe a more fitting representation of the Indian mutual fund industry today would be through our sports star, Rahul Dravid.

This article was originally published on October 28, 2024.