'Active investing will deliver alpha in ways passive strategies can't'

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

Valuations are broadly expensive, mainly down the capitalisation curve and certain micro sectors. Large caps are currently more attractive, with stock selection crucial in lower capitalisation buckets.

At PGIM India AMC, We don't take large cash calls; we remain true to fund mandates. To prepare for potential corrections, we stick to portfolios with degrees of quality and high earnings growth, as they tend to fall less in sharp drawdowns. We avoid overpaying for unsustainable growth; we don't buy stocks far from their intrinsic fair values.

The Nifty trades at about 24 times one-year forward earnings, above its long-term average of 20.3, based on expected earnings per share (EPS) compound annual growth rate (CAGR) of 11-12 per cent. The NSE 500 (the broader market) is currently trading at 26.5 times, compared to its long-term average of 21.8 times, suggesting the market may have borrowed future returns.

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

The appeal of passive investing lies in cost efficiency, transparency and the simplicity it offers to a wide range of investors. Its growth trajectory indicates that it may continue attracting attention from institutional and retail investors.

However, passive strategies track the broader market or specific factors without the ability to adapt to market conditions. This is where active investing retains its crucial role. Markets are becoming more dynamic, and active managers, with their ability to analyse, anticipate, and respond to market shifts, will continue to deliver alpha in ways passive strategies can't. They can capitalise on inefficiencies, invest in emerging opportunities and manage risk more effectively.

Will AI impact your business? How and why?

AI may greatly impact the mutual fund industry. It can enhance portfolio performance through rapid data analysis, improve customer service and personalisation, and bolster risk management and compliance. However, complete AI dependence is still distant, and we'll continue adapting to changes.

Rapid-fire questions

• If your fund house had a superpower for investors, what would it be?
  To control their behaviour during periods of fear and greed.
  
• The biggest mutual fund myth you'd debunk.
  Performance is not the only factor that matters. Savings rate matters more.
  
• An unconventional asset class you'd add to your portfolio.
  Art.
  
• A Bollywood movie that best represents the mutual fund industry today.
  Zindagi Na Milegi Dobara. It represents diversification, risk-taking, goal planning and enjoying the investment journey.