Edited excerpts from a chat:
Given triggers around GST 2.0, hopes of a trade deal with the US and earnings recovery in H2, what would be your advice to mutual fund investors who are not very happy with the returns they made last year? Is it the time to take it slow or be more aggressive in equity?
For investors who may feel underwhelmed by the returns they made last year, it is important for them to take a step back and look at the bigger picture. Equity markets in general have always been volatile in nature and go through phases of volatility, consolidation and growth. The good news is that the domestic economy continues to show resilience, supported by structural reforms and policy measures. The recent GST cuts are expected to ease pressures for both businesses and consumers, improving margins and boosting demand.
At such times, it is not about taking an aggressive stance or pulling back completely, but about staying consistent and disciplined. Continuing with SIPs ensures that investors benefit from rupee cost averaging and helps mitigate the impact of short-term volatility by spreading investments over time. Rather than worrying about near-term returns, investors should focus on the long-term wealth creation potential of equities. With India’s structural growth drivers intact, a resilient economy, and favourable policy support, patience and discipline will likely be rewarded. Hence, keeping SIPs going is the best course of action to navigate these turbulent times while holding on to the lumpsum monies already invested.
Given the interest rate cycle globally with both US Fed and RBI on an easing cycle, how should mutual fund investors balance between equity and debt funds?
In the current environment where both the US Fed and RBI are on an easing cycle, hybrid funds can be a smart choice for mutual fund investors. Instead of trying to time the right mix between equity and debt, investors should rely upon professional fund managers who actively adjust allocations based on interest rate trends, market valuations, and growth outlook. Hybrid funds provide investors with the benefit of diversification, reduce the need for constant monitoring, and ensure disciplined rebalancing between asset classes. By leaving the balancing act to an experienced manager, investors can participate in equity upside while also benefiting from the stability of debt, all within a single, professionally managed product.
Do you think mid- and small-cap valuations are stretched at this point, or is there still room for upside?
Both mid-and small-cap segments are currently trading at valuations above their historical medians. That said there continue to be selective opportunities in both segments that have robust earnings visibility, resilient balance sheets, and exposure to structural growth themes. While headline multiples suggest some caution is warranted, disciplined stock selection can still uncover opportunities within the broader mid and small-cap universe.
Multi-asset allocation funds have grown in popularity due to the rise of gold and silver. What would be your advice for investors looking to understand whether they should invest in gold-silver ETFs or leave the asset allocation job via a multi-asset allocation fund?
For most investors, it makes sense to leave the asset allocation decision to a professional fund manager through a multi-asset allocation fund rather than trying to manage gold and silver exposures on their own. These funds dynamically adjust allocations across equity, debt, gold, and sometimes silver based on market conditions, valuation signals, and risk-reward trade-offs. This approach ensures diversification without the hassle of monitoring multiple asset classes or deciding entry and exit points in commodities, which can be highly volatile. By entrusting the allocation to an experienced fund manager, investors benefit from disciplined rebalancing, professional research, and reduced behaviour biases, making it a more efficient and convenient way to capture the benefits of precious metals within a well-rounded portfolio.
Auto stocks have seen a sharp rally since the August 15 announcement on GST rate rationalization. How comfortable are you with valuations in auto stocks after that? Do you think we are at the start of a multi-year auto cycle?
Auto stocks have indeed seen a sharp rally since the August 15 announcement on GST rate rationalization. Market participants have priced in the positive sentiment from lower indirect taxes, which should support demand and margins over time. While the GST rationalization is a structural positive for the sector, valuations in auto stocks remain comfortable relative to historical levels and sector fundamentals. This suggests that the recent rally still leaves room for further gains as the benefits of lower taxes flow through to earnings over the coming quarters.
Regarding the broader cycle, it is too early to conclude that we are at the start of a multi-year auto upcycle. While policy reforms, improving consumer sentiment, and lower interest rates provide a supportive backdrop, the sector’s long-term performance will ultimately depend on earnings growth, capacity utilization, and macroeconomic conditions. In the near term, one should balance optimism on structural reforms with caution on valuations and ensure that any allocation reflects a disciplined, long-term perspective.
For someone who made a lump-sum investment in a Large-cap fund one year ago, He/she is likely at a loss. But an SIP has given double-digit returns. Do you think SIP is best suited for a sideways market like this?
Yes, SIP is particularly well-suited for a sideways market. They allow investors to stay disciplined by investing regularly, regardless of market conditions. SIPs allow for rupee cost averaging in choppy or sideways markets, i.e., help in buying more units when prices are low and fewer when prices are high, thereby lowering the average cost over time. This approach reduces the impact of volatility and avoids the risk of mistiming the market. SIPs also instill a long-term mindset, making it easier to ride out short-term fluctuations. Over time, this consistency can lead to wealth creation even in choppy markets.
In the last few months, we have seen sustained supply of new paper via selling by insiders, promoters, PE/VC funds and now IPOs. Can we blame supply pressure as one of the reasons for the Indian market’s underperformance?
The recent weakness in Indian equities cannot be explained by a single factor; it reflects a combination of market dynamics that have converged over the past few months. When such large volumes of shares enter the market, liquidity gets absorbed, leading to a temporary cap on price appreciation even when broader economic or corporate fundamentals remain supportive. At the same time, Foreign Portfolio Investors’ (FPIs) outflows have added to the headwinds. Global risk-off sentiment, shifts in asset allocation, and heightened geopolitical concerns have led FPIs to reduce exposure to Indian equities, further weighing on the market.
Alongside these flows, valuations had risen sharply over the past year, reaching levels where a correction was natural. In many cases, earnings delivery lagged the re-rating, which amplified the impact of these valuation pressures. Other factors like Trump’s policy stance, heightened geopolitical volatility, and relatively weaker earnings delivery from certain sectors have also played a role. Despite these challenges, the underlying domestic economy remains resilient, supported by structural growth drivers and favourable policy measures. Over the medium term, as valuations recalibrate, earnings growth and broader economic fundamentals are expected to play a more prominent role in determining market direction. For investors with a long-term horizon, these near-term pressures are temporary in nature.
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