With the market being highly volatile since February-end, investors have become quite jittery. However, Rahul Singh, chief investment officer (equities) of Tata Mutual Fund, which manages Rs 2.7 lakh crore in assets, tells Kushan Shah that it could be a good time to deploy cash for a period longer than three years. Excerpts:
The market has fallen significantly since the West Asia crisis began. Though there are signs of recovery, is it time to deploy cash?
The risks in the market have not gone away but valuations have come down materially. Nifty’s forward P/E has come down from 23x to 18x since 2024. More importantly, the valuation premium of Indian markets has come down relatively, compared to other emerging markets, and in absolute terms regarding the premium of mid and small caps compared to large caps. However, this valuation normalisation needs to backed by earnings growth.
For Nifty 50, earnings could be in low to mid-teens in FY27 due to the war in West Asia, which is still better than the growth in the last 2 years. So, combined with lower valuations and earnings growth, I expect steady returns in equity going forward. So, it is a good opportunity to deploy cash with an investment horizon of over three years.
Do you think the relatively reasonable valuation along with earnings recovery will attract FPIs back to the Indian markets?
FPI inflows are difficult to predict because they are also dependent on the opportunities outside India. India has been affected negatively by the impact of AI on our IT services sector in terms of growth trajectory and job creation. It has also impacted consumption, which also creates an additional risk in terms of the impact on GDP growth in a consumption-driven economy like India.
Other countries are also not as impacted by the rise in commodity and crude prices. So, if the earnings growth comes back as forecasted by experts, FPIs will look back towards Indian markets. If crude prices come down and the AI bubble bursts, India will gain from it, but this is tough to predict. What can be said is that if the earnings growth comes back, India will get a share of the FPI inflows and hence, reduce the net outflows.
Over 80% of Tata MF AUM is from the T30 cities. How do you see the fund house gaining a larger asset share in smaller locations?
The penetration of mutual funds in smaller locations can be through a combination of mutual fund distribution and direct channels. Evergreen products like balanced advantage or multi-asset allocation schemes can be a good start for such investors as they don’t need to time the markets, leading to a steadier investor experience.
Which are the new opportunities are you looking?
We are looking at new products based on quantitative research. We are also looking to launch one or two more products in the SIF space.
Majority of active equity funds are struggling to beat their benchmarks. How do you think active funds can continue to add value to investors amidst rising popularity of passive funds?
Many active funds, especially in the large cap space, are finding it difficult to beat the benchmark. Passive funds can play a part here along with factor-based funds (like quality and momentum) and niche sectoral funds, which cannot be accessed using active schemes. In these products, the share of passives will continue to grow. In other equity categories like flexi cap and multi cap, over a long-term, active funds have performed well compared to their benchmarks. So, both categories will continue to grow in products where they offer value to their investors.
Which themes are you bullish about in the current market?
We are bullish about resources and energy segment, including power, metals and mining. Consumption and banking & financial segments also have good opportunities.