'Current valuations are higher than seen in the past five years'

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

Current market valuations are higher than seen over the past five years. So, we are expecting some time and price correction to take place. We are moving to a diversified portfolio and stepping back from very expensive stocks with high growth expectations.

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

We believe that index and factor-based passive funds, or rule-based funds, are an important asset class, and they will continue to play a significant role in the investment landscape. Two areas in which these funds will be especially important are - (a) a very convenient and easy tool for investors who are making initial forays into the equity capital markets as they are simple and easy-to-understand products, culling out a lot of variables and just giving exposure to the portfolio defined by a particular index and (b) as asset allocation tools, giving investors exposure to a different investment philosophy and strategy compared to active funds.

That said, at JM Financial Asset Management, we also believe that for the next few decades, active funds will play an even bigger role as India evolves rapidly and throws up multiple alpha-creating opportunities, both in terms of stock picks and sector rotation. India is at an exciting threshold, and a good fund manager will have several avenues to deliver superior risk-adjusted returns for the foreseeable future.

Will AI impact your business? How and why?

AI is slowly but surely becoming an integral part of the asset management business. We think it will be a force multiplier for investment teams to be able to get early leads on stock ideas, ongoing portfolio monitoring and maintenance. It will have an important role in sales, operations and client servicing. In fact, AI-based techniques and technology will significantly disrupt client servicing and sales. AI will also ensure bespoke superior client servicing is delivered not only to the smallest client but also at a scale which hitherto was unimaginable. In future, due to AI, limits won't be defined by technology but by one's imagination.

Rapid-fire questions

• If your fund house had a superpower for investors, what would it be?
  To be able to deliver excellence in client service to the smallest investor and at scale.
• The biggest mutual fund myth you'd debunk.
  That the cheapest funds are the best for the investor.
• An unconventional asset class you'd add to your portfolio.
  Don't know whether unconventional or not, agricultural land.
• A Bollywood movie that best represents the mutual fund industry today.
  From a title perspective, 'Taare Zameen Par' for the millions of small investors hitherto misunderstood and neglected, benefitting hugely from mutual fund investments.

This article was originally published on October 29, 2024.