'Index and smart-beta funds will be key to modern portfolios'

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

The narrow market, represented by the Nifty, is trading at 20x 12-month forward earnings and in line with its long-period average of the last 10 years of 20.5x. Valuations are reasonable, considering the likely earnings growth of around 15 per cent over the next two years. But, broader market valuations comprising mid and small companies are well ahead of their long-period averages. They're likely to witness some loss of earnings momentum relative to the past two years. This requires a cautious approach. But, we don't see any major risk from a valuation erosion perspective as the top-down narrative remains strong. Yet, we're watchful of any signs of earnings deceleration as it can induce an earnings-led cyclical correction.

At IAMI, we maintain a disciplined investment process and conduct sufficient due diligence to guard against investment accidents. While our investment and portfolio management approach doesn't involve timing the markets, we maintain adequate portfolio diversity and ensure enough risk controls to manage volatility better.

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

We will provide our investors with both active and passive investment options. India is still a growth market, so many alpha opportunities will exist. However, I believe that index and smart-beta funds will become key parts of modern portfolios over time, owing to their lower costs and evolving investor preferences.

Will AI impact your business? How and why?

AI is advancing quickly, and I see a great opportunity to use it to boost productivity and offer more personalised services. I've asked my team to explore one or two practical use cases each year. We're working on a tool to help our investment team track companies and topics, organise data and provide real-time updates using AI, helping them focus more on insights. We also want to improve document interaction using NLP (natural language processing).

Rapid-fire questions

• If your fund house had a superpower for investors, what would it be?
  An investment process ensuring discipline, uniformity, team approach and consistency.
• The biggest mutual fund myth you'd debunk.
  That mutual funds are best only for equity investing. They were once seen as best for debt investing. But, mutual funds invest across asset classes.
• An unconventional asset class you'd add to your portfolio.
  Art and coins.
• A Bollywood movie that best represents the mutual fund industry today.
  3 Idiots.

This article was originally published on October 29, 2024.