'Active strategies may thrive in Indian markets for a long time'

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

Current valuations on a one-year forward basis are higher than long-term averages. But, it is important to understand the context before jumping to conclusions. Valuations (particularly in large caps) reflect a significant improvement in ROE (return on equity) over the past few years, and strong fundamental and robust growth is expected over the next few years. However, some pockets of exuberance seem to exist, particularly in mid and small caps. While, as a policy, we avoid cash calls, we change the portfolio's composition from a relative risk-reward perspective to prepare for any potential correction.

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

At Union AMC, we believe active strategies may continue to thrive in the Indian markets for a long time. Passive strategies will also have a role to play in some portfolios and will co-exist. I believe it's an 'and' strategy rather than an 'or'.

Will AI impact your business? How and why?

AI is revolutionising pattern recognition, anticipating events and making faster, better decisions. It's opening new avenues beyond traditional cost reduction and operational efficiency, particularly in investment management, where differentiation is becoming increasingly commoditised. The three key areas where AI can impact the asset management business the most are:

a) Investment excellence: AI allows processing and analysing vast datasets, to identify valuable correlations. AI-assisted research analysts can more efficiently summarise reports and earnings calls, extracting insights from vast information. AI also helps enhance data analytics.

b) Distribution outreach: AI models, including intelligent chatbots and AI-driven call centres, enable AMCs to efficiently service distributors and investors and support personalised product recommendations.

c) Operational efficiency: AI can assist in meeting regulatory requirements, especially in evolving risk and compliance frameworks, like monitoring insider trading and market abuse with integrated solutions and account aggregator platforms.

Rapid-fire questions

• If your fund house had a superpower for investors, what would it be?
  Superpowers help create magical outcomes. If we could make investors focus on the number of years invested rather than returns, outcomes could be magical.
  
• The biggest mutual fund myth you'd debunk.
  That NFOs (new fund offers) at Rs 10 are cheaper than funds with existing track records.
  
• An unconventional asset class you'd add to your portfolio.
  None. I would like to stick with traditional asset classes, i.e. Indian equities/Indian fixed income/gold and international equities.
  
• A Bollywood movie that best represents the mutual fund industry today.
  Waqt Hamara Hai.

This article was originally published on November 06, 2024.