'Current valuations aren't cheap, so sitting on 17 per cent cash'

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

Valuations currently are not cheap, especially in the mid- and small-cap space. We have a disciplined investment philosophy and strategy where we don't blindly buy stocks on current fads and fancies. At PPFAS Mutual Fund, in fact, we stay away from hyped-up sectors and look for bargains in neglected sectors. We are patient investors and don't mind waiting for the right opportunities to come our way. We also don't force ourselves to invest if we do not find the right opportunities and are happy to sit on cash when valuations are stretched. Today, we are sitting on around 17 per cent cash. We are mindful of the fact that starting valuations will determine future returns. Right now is the time to be careful, cautious and selective about where we invest our investors' hard-earned money.

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

I believe the Indian markets and the mutual fund industry are still evolving, and we have witnessed good growth in the last few years in terms of AUM as well as unique investors. As such, there will be a place for all products, depending on the investors' needs, risk profiles and preferences. Actives, passives and quants will co-exist. A few years ago, NPS and EPFO were permitted to invest the retirement corpus in equities through passives/ ETFs, and this allocation has steadily increased since then. I believe the trend of various products co-existing will continue.

Will AI impact your business? How and why?

AI tools will eventually impact many areas of the business. Every role in a company has multiple tasks to achieve. Tasks which are repetitive can be automated using AI. This will positively impact productivity across all departments. I see AI immediately impacting research, customer service, accounts/finance and marketing.

Rapid-fire questions

• If your fund house had a superpower for investors, what would it be?
  The ability to rid them of their craving for 'action/doing something'. This would protect them from second-guessing market moves and help them benefit from the power of compounding just by being in the market.
  
• The biggest mutual fund myth you'd debunk.
  That SIPsare a guarantee against suffering losses.
  
• An unconventional asset class you'd add to your portfolio.
  Outbound or overseas investments through the GIFT City route.
  
• A Bollywood movie that best represents the mutual fund industry today.
  Kal Ho Na Ho (Investors chasing IPOs/NFOs as if there is no tomorrow).

This article was originally published on November 05, 2024.