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Cautious optimism – that’s Ashutosh Bhargava’s read on the Indian equity market right now. While he acknowledges that volatility, especially from geopolitical risks, isn’t going away anytime soon, he’s convinced that the worst is over. A stronger-than-expected fourth quarter, a supportive RBI and an improved fiscal stance have all contributed to this outlook.
As Head of Equity Research and Fund Manager at Nippon India Mutual Fund, Bhargava oversees 10 schemes with a combined AUM of nearly Rs 60,000 crore. Among them, the Nippon India Multi Cap Fund has an impressive five-star rating from Value Research.
In this interview, Bhargava gives his take on the ongoing market uncertainty and why a disciplined approach is the way for investors to navigate it. He also discusses why flexi-cap and multi-cap funds offer a compelling balance of risk and reward, the steps he’s taking to revive the performance of his multi-cap fund and the challenges of momentum investing.
How would you describe the Indian equity market in 2025? What are the primary drivers of its performance? After the recent volatility, do you think the worst is behind us, or should investors prepare for more ups and downs?
This year has been extremely volatile. At the start of the year, we didn't see such a wide variety of news flows affecting the market. However, if you observe the market now on a year-to-date (YTD) basis, it is actually higher and climbing the wall of worry. In my opinion, the decline from September to March was mainly due to the sharp disappointment in earnings. What the market is now anticipating is that the worst of earnings downgrades are behind us. This earnings season, which is just concluding – January to March – has shown better breadth than expected. In most sectors and companies, earnings have actually surprised positively.
There have also been enough cuts to earnings estimates for FY26 and FY27. With meaningful improvements in local monetary conditions and a highly supportive RBI, there has also been an improvement in the government's fiscal stance. The whole domestic policy environment is turning favourable, and the hurdle rate for the market over the next 12 months in terms of earnings has become much easier. The market, being forward-looking, is now realising that the worst of the news flow and earnings is behind us. Therefore, it now looks significantly better compared to where we were three months ago.
In my opinion, the worst is behind us because the market mainly cares about earnings. Even in terms of news flow around tariffs, etc., I think we are well past the worst there, too. There has been some improvement. So, from here on, while some of the recovery from March has already happened, the worst of the market is behind us. Investors should consider increasing their allocation, especially if there is any interim downside.
What are the main risks investors should watch out for in the coming months, and how can they best navigate these challenges?
One of the potential risks investors should watch out for is geopolitical risk. While it looks settled now, any negative news flow could pose a risk.
Another risk is a potential accident in the global fixed-income market, particularly in the US or Japan, where central banks are not as supportive as in India. Beyond that, I don't see many risks. Yes, news flow will continue – there's no escaping it in today's global political environment – but I believe markets may continue to climb the wall of worry.
From an investor's perspective, our advice remains the same: be disciplined. If you're doing SIPs, continue them. And if, for any reason, the market corrects by 10 per cent, I would recommend increasing equity allocation with a two- to three-year mindset because the worst seems to be behind us.
How do you see the valuation differences between large, mid and small caps right now? Which segment offers the best balance of risk and reward?
Large caps currently offer better valuation comfort. But if you look at earnings potential over the next two to three years, small and mid caps offer much higher growth. I suggest looking at the risk-reward not from a size category perspective, but as a combination.
Flexi-cap and multi-cap funds, where the fund manager isn't restricted by size, are ideal.
In today's and future context, the large-mid-small-cap debate is less relevant. The profit pools in small and mid caps are often high-quality and high-growth, which are absent in large caps. So, while large caps may appear safer from a valuation standpoint, if you're looking for both the right price and value, you should move beyond this debate.
Could you share your investment philosophy and the key factors you consider when selecting stocks for your portfolios, particularly in today's dynamic market environment?
I'm more of an evidence-based investor. I rely less on forecasting and more on assessment. I place significant trust in our large research team. Bottom-up is the preferred approach – it's more repeatable than top-down, especially when making macro predictions is so challenging. As a fund house, we focus not on growth versus value but on areas where growth is superior and valuations are acceptable. It's the classic GARP (growth at a reasonable price) approach.
We're also very mindful of sectoral competitive intensity, as this affects pricing power. Macro is important, but micro matters more to me and our team at Nippon.
Nippon India Multi Cap Fund had outperformed significantly from 2021 to 2024. What drove its strong performance?
There are only two sources of alpha: Selection and allocation. Selection refers to choosing the right stocks within a sector, while allocation involves selecting the right themes and sectors to invest in. Both worked for us. We took meaningful overweights in industrials and consumer discretionary.
We were more positive on domestic demand, and within consumption, we favoured discretionary over staples. In sectors such as financials and automobiles, our stock selection was more effective than allocation. So it was a mix of both: A few sectoral overweights and strong internal research.
The multi-cap fund is in the third quartile this year. What caused the dip, and are you taking any steps to bounce back?
We aren't doing anything different. The philosophy remains the same – identify good businesses with improving earnings visibility and reasonable valuations. We're comfortable with our current positioning and aren't perturbed by short-term underperformance.
The fund holds over 120 stocks, but nearly 74 per cent of the portfolio is concentrated in the top 50 holdings. Why is that so?
The fund mandates a minimum 25 per cent allocation to each size category – large, mid and small caps – we're essentially running three sub-portfolios. That means 30-40 stocks per category.
However, in areas where we have high conviction, we take sizable overweights, not marginal bets. Our active share remains high, and the churn is limited, even with periodic SEBI-driven rebalancing. This reflects our medium- to long-term mindset.
Among the hybrids, we are more comfortable with aggressive hybrid funds, which have a more defined asset allocation pattern, allowing an investor to have a very definitive cue about where the fund lies on the risk-return spectrum. What kind of investors do you target with the kind of strategy you run in your balanced advantage fund (BAF)?
The Balanced Advantage Fund (BAF) is designed to adjust its net equity allocation based on factors such as valuations and evolving macroeconomic conditions. We typically move between 30 and 80 per cent in net equity. Whenever we drop below 65 per cent gross equity, we hedge through derivatives.
This fund is suitable for investors who seek lower stress in equity investing. Even aggressive hybrid funds can carry high volatility. BAFs offer more comfort during market stress. We focus primarily on large caps – more than 80 per cent of gross equity – so our approach emphasises consistency, safety and lower variability. We aim to remain in the second quartile across various timeframes, which is ideal for investors seeking moderate returns with lower risk.
For retail investors worried about sudden market drops, what practical steps can they take within their asset allocation to reduce risk without missing out on potential gains?
The key is to focus on asset allocation but avoid doing it yourself (DIY). DIY allocation results in suboptimal taxation – fixed income, for example, can be taxed at up to 39 per cent.
Multi-asset funds address this issue with efficient tax management and diversification.
Make these funds the nucleus of your portfolio and stay invested for 3-5 years. For equity-heavy portfolios, systematic investing is the best route. Lump sum investments should only be made after a 10-15 per cent market correction. Otherwise, invest a lump sum in asset allocation funds for better risk-adjusted outcomes.
Managing momentum funds can be tricky. How do you spot stocks with lasting momentum, especially in volatile markets?
Momentum is often misunderstood as random, but strong momentum is typically backed by earnings. We combine buy-side (price) and sell-side (earnings estimate revisions) momentum. We track which stocks are outperforming and what analysts are forecasting. This combined view gives us a more robust momentum signal.
What challenges do you face during market reversals in momentum investing?
Momentum investing is vulnerable during sharp market reversals. For instance, a sudden bull turn in a bear market can see previous laggards outperforming. Similarly, in August and September of last year, winners turned into losers.
We have frameworks to identify such extremes. For example, if 90 per cent of stocks are above their 200-day moving averages (DMAs), risks are higher. Just a couple of months ago, fewer than 10 per cent of stocks were above their 200-DMAs, suggesting it was time to add beta. So, knowing when not to use momentum is just as important. If you can avoid such turning points, momentum works very well 80-85 per cent of the time.
Also read: Valuations better, but far from cheap: HDFC's equity head
Disclaimer: This content is for information only and should not be considered investment advice or a recommendation.
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