'Human judgment will remain essential to generate alpha'

Model-driven vs human-led portfolios?

I continue to believe that in an inefficient market like India, human understanding will remain essential for generating alpha. It will be needed even more in the mid- and small-cap segments, which have now grown significantly in terms of AUM (asset under management) and the breadth of stocks available.

Model-driven investing can only become a reality when the underlying data and data collection processes are robust and consistent, which is not the case for the Indian market. In a market where the unorganised sector remains substantial, data collection remains a serious challenge. Inaccurate or incomplete data can lead to flawed decision-making if one relies on models.

Post-stress test safeguards?

We had these rules in place even before the introduction of stress tests. Stock liquidity and adequate sizing of a stock in the fund have always been critical factors for us. For example, in our mid- and small-cap funds, we typically restrict stock exposure to a maximum of 5 per cent of the portfolio, even though regulations permit up to 10 per cent. As a result, our mid- and small-cap funds have some of the best liquidity ratios in the industry. We also take pride in staying true to mandate.

On low-friction investing and investor churn.

Digital investing is a relatively recent phenomenon, having gained traction only over the past two to three years. Coincidentally, this period has also been kind and given very strong returns. We need one full cycle of boom and bust to play out before reaching any meaningful conclusions regarding digital investor behaviour around holding periods or churn. When investors are sitting on a lot of profit, their behaviour will be very different from that of another investor whose portfolio may be flat or down.

Rapid-fire questions

• One AMC you admire (not yours): HDFC AMC, PPFAS.
• One hot trend you’re glad to have skipped for your investors: Micro caps, credit funds.
• One fund manager, past or present, you would love to have on your team: Rajeev Thakkar.
• Beyond returns, one criterion you want investors to judge your AMC on: Research, process-driven investing, team approach.
• If not running an AMC, what would you be doing? Entrepreneur, running a technology company.

This article was originally published on October 23, 2025.