He said that it is difficult to predict the momentum of Indian equities for the rest of the fiscal year because there are numerous critical factors and uncertainties, including geopolitical setbacks.
“If there’s a reason for concern that results in better valuations, I see it as an opportunity to deploy more capital into the markets.”
Edited excerpts:
Q 1) Do you think this bull run might be nearing its final stretch, given the ongoing consolidation and heightened volatility from tariffs and the H-1B visa fee hike? With all that in play, do you see any headwinds in the coming months for Indian equities?
We think Indian equity markets have a long runway ahead just from the perspective of potential economic growth, demographics, and the ability to move per capita income higher. From a short-term perspective, we have definitely seen headwinds emerge on the external front with tariffs and visa fee hikes. This is not yet fully reflected in the company’s earnings. However, the heartening aspect here is that the government is now taking stronger steps to boost domestic growth, which can act as an effective offset.
In terms of further headwinds, valuations have been on the higher side for Indian equities in the past, but even that is now getting normalized, particularly for large-cap stocks. Foreign institutional investors (FIIs) have been significant sellers of Indian equities over the past 12 months, but their positioning now has become very light and is unlikely to be a big headwind going forward.
Q 2) Why are negative announcements not shaking the market now the way they did during and after covid, when even small setbacks would trigger a sharp selloff?
Earlier, markets saw knee-jerk reactions as holding patterns were limited. Now, with a broad-based holding structure dominated by domestic institutional investors (DIIs)—essentially pooled individual money—panic selling is rare. Unlike individual investors, institutions make decisions after thorough due diligence, with a long-term view of value creation, so they don’t dump stocks on short-term news.
Q 3) What are the factors to watch out for going ahead?
The recent GST (goods and services tax) reforms, coupled with the income tax relief offered earlier this year, are beginning to aid consumer sentiment. We need to wait and watch to understand how sustainable this demand spurt is. On the external front, negotiations are going on between India and the US regarding tariffs. Any resolution here can be a meaningful positive development. On the interest rate front, one can argue that further easing by the Reserve Bank of India is likely, which could be positive for both fixed income and equities.
Q 4) Where do you see the strongest growth coming from? Which segment is drawing the most traction among investors?
The sweet spot for retail investments lies in the ₹2-20 lakh range, mostly coming through Systematic Investment Plans (SIPs) or ticket sizes of ₹5-10 lakh, although larger tickets are also available. With SBI’s pedigree, the focus is on affluent individuals and aspiring wealth creators, managing their money responsibly to generate long-term value.
Q 5) When it comes to geographies, where are you seeing the most traction, and which regions are you focusing on?
You might be surprised to learn that some of the major equity investors aren’t from B30 cities, but rather from B100 cities. Geography is no longer a limiting factor. There’s a significant opportunity to attract investors from other regions, and potential exists everywhere.
Q 6) As a sign of investor maturity, would you say that the large-scale redemptions we saw earlier are now less frequent?
It’s the opposite now—when markets fall, people are investing more in equities. Another factor is that mutual funds, which often hold 5-7% cash (sometimes even 8-10%), deploy it during market dips, helping stabilize prices immediately. This abundant liquidity plays a crucial role in supporting both market stability and growth.
Q 7) So, essentially, if the mutual fund industry continues to grow, does that mean we might not rely on FIIs any more?
Dependence on FIIs has already fallen drastically. Currently, nearly $3.5 billion flows into the market each month through SIPs and other structured funds, including insurance companies and retirement funds. On top of this, mutual funds hold substantial cash reserves, effectively acting as “dry ammunition” that can be deployed when needed. This steady inflow and available liquidity will not just help stabilize the market but also reduce dependency on FIIs to a large extent.
Q 8) So, how do you see the momentum for the rest of the fiscal year, particularly by the end of December?
It is difficult to predict because there are numerous critical factors and uncertainties, including geopolitical setbacks. As I mentioned earlier, we don’t approach this like traders—we are investors. Over time, things tend to balance out. If there’s a reason for concern that results in better valuations, I see it as an opportunity to deploy more capital into the markets.
Q 9) Do you think this phase of consolidation could continue for several months—say five or six—where the market mostly moves sideways without any significant swings?
Yes, this trend will continue. Market indices and actual fund performance often differ: Your scheme may track an index, but the portfolio might not even reflect 25% of its movements.
New IPOs (initial public offerings) aren’t part of the index, and their market cap doesn’t immediately impact it; it often takes six months to a year for large-cap IPOs to be included in an index.
Q 10) How do you view mid- and small-cap companies? Do you see any froth, given that most alpha seems to be coming from the broader market rather than large-caps?
Yes, there will be froth—some companies may have stretched valuations, even among large-caps, which we might avoid. But our focus is on good businesses with strong governance and management. Valuation is just one factor; we place greater emphasis on the other three. While we will hold some stocks, our core investments are in companies where we have high conviction, and we are comfortable holding them for three, five, or even ten years, confident they will become multi-baggers over time.
Q 11) Many of these mid- and small-cap stocks have around 80% exposure to US. Do you think such companies should be avoided, given the potential volatility, even if they have strong management?
Some investors see this as a period of disruption, while others fear missing an opportunity if they exit now. It’s very subjective and hard to generalize. However, it is very important to note that the current situation is temporary and unsustainable; eventually, market sanity will prevail.
Q 12) You recently launched a specialised investment fund (SIF) product. What’s the main focus there? Since you said most traction comes from the ₹2-20 lakh range, is SIF targeting this sweet spot for you?
It is a very good initiative by the regulator. Earlier, there was a gap; you either had to be in mutual funds or in PMS/AIFs (portfolio management service/alternative investment funds), where you could use derivatives and other tools. While many investors have gained experience with these instruments, their benefits were not available to a broader base. Additionally, the regulations for PMS and AIFs are less stringent.
The regulator’s intent was to bridge the gap by introducing them within a regulated framework, enabling innovation while ensuring that investors’ interests are protected. SIFs are an attractive opportunity: they fill the space between traditional equity and debt products, offering a middle ground that caters to evolved investors, high-net-worth individuals (HNIs), and ultra-HNIs. The structure is tax-efficient, allows for better management of volatility and aligns with the growing demand for more nuanced investment strategies.
Q 13) When it comes to the Indian equity space, which sector do you think holds the biggest opportunity?
There are opportunities across various sectors as the overall ecosystem expands, but the financial sector stands out as particularly attractive. In fact, each sector has strong companies with good prospects, but I emphasize banking and finance because the ecosystem has strengthened significantly, making India one of the best globally. Margins in this space remain healthy, supported by strong demand and robust consumption. On the credit side, too, the sector demonstrates high quality, which builds confidence that it will continue to perform well.
Q 14) What about the other sectors, like IT and pharma?
I don’t deny that IT has been an important sector in India’s growth story. Yes, there are global headwinds impacting it at the moment, but we believe these challenges are short-term in nature.
Eventually, conditions will stabilize, and we should start seeing strong green shoots emerging in the sector again.
Q 15) When we talk about the broader economy, India has underperformed many global markets. How do you view India in comparison to other countries as an investment destination?
Again, these are just index numbers. If we look over a 5- or 10-year horizon, the Indian market has actually done quite well. Some of the performance was front-loaded, so naturally, things even out over time. But in the longer term, even in dollar terms, Indian investors have seen strong returns. Against certain currencies, performance appears weaker, primarily due to volatility in exchange rates. However, whether you look at the rupee or the US dollar, over 5, 10, or even 15 years, India has generated healthy alpha. That’s the perspective to keep in mind; one- or two-year market performance isn’t the right metric to judge an economy or its markets.
