'We are at an early stage of financialisation of savings'

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

The Indian equity market has been one of two prominent markets (alongside the US) generating close to double-digit returns (in dollar terms) over recent decades. We're now the fourth largest market globally, recently overtaking China as the largest weight in the emerging markets index. This reflects India's strong corporate fundamentals, robust economic positioning and rapid financialisation of a growing domestic savings pool.

Some pockets have turned expensive, particularly in the mid- and small-cap space. Our team at HDFC Mutual Fund focuses on identifying attractive bottom-up opportunities while exercising caution. Investors should focus on longer-term fundamentals and remain disciplined in their approach.

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

Index and factor-based investing have seen widespread global adoption. We've observed continuous improvement in index investing science, supported by advancements in quantitative techniques and tools. We expect increasing acceptance of these products in India over time.

However, growth won't come at the cost of active investing, which remains pertinent for Indian investors building portfolios to meet financial goals. Fund houses investing in necessary alpha-creation capabilities will continue to thrive.

India is at an early stage of financialisation of savings, with growth potential across all segments.

Will AI impact your business? How and why?

AI impacts various businesses, with knowledge industries like ours being early adopters. From client-servicing chatbots to AI-assisted content generation, regulatory disclosures, investment decision-making, risk management, and portfolio optimisation, AI's potential is vast.

We see AI as a powerful tool to enhance operations, enabling better, faster, and more personalised client services. The journey has just begun. We're excited about its potential to shape our industry's future.

Rapid-fire questions

• If your fund house had a superpower for investors, what would it be?
  A Zen-like mindset to sail through the market ups and downs.
• The biggest mutual fund myth you'd debunk.
  That one can easily time the market.
• An unconventional asset class you'd add to your portfolio.
  I have tremendous faith in conventional asset classes.
• A Bollywood movie that best represents the mutual fund industry today.
  Swades. A vision for grassroots inclusion.

This article was originally published on October 28, 2024.