'AI will drive productivity in investment decision making'

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

Corporate earnings trends align with stable economic growth, cutting across multiple sectors. This robust growth has heightened investor confidence, leading to valuation expansion across cap curves and sectors, sometimes beyond justification in extrapolative financial models. This calls for caution in incremental investments.

At Sundaram Mutual Fund, we aim to diversify prudently, using a bottom-up approach to identify sectors with sustainable growth drivers. We invest in companies with growth visibility, cash flow certainty, and lesser vulnerability to external shocks. Valuations and safety margins are crucial. We'll blend this prudence with contrarian calls, increasing exposure to underperforming sectors that could determine future investment outcomes.

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

If analytics and modern technology can convert various mental models used by famed investors and fund managers into a set of 'adaptive decision-making rules', it should be welcomed. They may not be usable as unsupervised algorithms, but with healthy human supervision, they should help minimise errors. Hence, we remain constructive on factor-based smart beta semi-passive funds.

However, the proliferation of passive funds in the guise of low cost and low tracking error is a different problem altogether, and one needs to be wary of them.

Will AI impact your business? How and why?

Three areas where we will see increasing use of AI are investment research, risk management and customer insights.

AI will drive productivity and lead time in decision-making in our investment functions. On the risk management side, it can provide real-time risk management, reducing the incidence of fraud. On the business side, one can visualise its contribution to predictive analytics and interventions on investor behaviour.

Rapid-fire questions

• If your fund house had a superpower for investors, what would it be?
  Possibly give them a single super-app that integrates services provided by RTAs (registrar and transfer agents), AMCs (asset management companies), and government agencies while meeting investor education and legal needs.
  
• The biggest mutual fund myth you'd debunk.
  That mutual funds are useful only for normal investors and not for HNIs (high net-worth individuals) and ultra HNIs.
  
• An unconventional asset class you'd add to your portfolio.
  Good organic farmland.
  
• A Bollywood movie that best represents the mutual fund industry today.
  Kabhi Khushi Kabhie Gham.