The Indian stock market has been going through tough times, but the good news is that retail investors have continued to invest in systematic investment plans (SIPs), says Radhika Gupta, MD & CEO of Edelweiss Asset Management Company. Gupta tells Akshata Gorde that the SIP book, currently at Rs 25,000 crore a month, will rise to Rs 80,000-90,000 by 2030. Excerpts:
How do you see the stock market in 2025? What kind of asset allocation would you prescribe?
The year 2024 saw elections in three major markets, the start of the rate cut cycle in the US, and notable outflows by foreign institutional investors from India. Moving into 2025, the focus will shift from elections to corporate earnings, which can drive the markets forward. Several stocks have rallied on earnings expectations, and the coming year will test the delivery of those expectations. For investors, maintaining a disciplined approach to asset allocation remains crucial. In equities, large-cap valuations appear fair, while mid- and small-caps are trading at a 10-30% premium to historical averages. A balanced allocation across flexi-cap and multi-cap strategies, avoiding extreme tilts. One should maintain a healthy allocation to debt and even international equities. In 2025, a middle-path approach with diversified investments and long-term focus will be the key.
Despite the FPI selling and profit-booking by investors towards the end of the year, the mutual fund SIP book has hit record levels of Rs 25,000 crore. Will this continue?
Yes, we do see the SIP book continuing to grow structurally. Back in 2017, when I joined the mutual fund industry, the SIP book stood around Rs 4,000 crore, and very few could have guessed that it would reach Rs 25,000 crore. People are embracing SIPs as a structural way of saving and value cost averaging. In fact, I believe the word ‘SIP’ has become more popular than ‘mutual fund’ itself. With the number of new investors joining, there will always be some tapering off of the froth or closing of short-term SIPs—perhaps 5-10% of the book. But I’m optimistic that by the end of the decade, India’s SIP book could grow to Rs 80,000-90,000 crore.
There are also concerns of a slowdown in earnings growth along with the possibility of earnings downgrades in the coming quarters. These have prompted some fund houses to hold cash levels as high as 50-80%. Do you share those concerns?
We focus heavily on earnings growth across all our portfolio companies, as it remains a core driver of market growth. In our long-only funds, we follow a strict policy of not holding more than 5% cash. When investors allocate money to, say, a large-cap or mid-cap fund, they expect us to remain largely fully invested in those respective segments. Asset allocation decisions are best made by investors and their advisors outside the fund.
Our core expertise is in stock selection and sector rotation, and not in timing the market. That’s why we maintain minimal cash levels. However, we are extremely agile in our fund management approach. We are constantly looking to find investable opportunities, and move our portfolios. For instance, previously our portfolios had significant overweights in sectors such as industrials and capital goods, which we’ve recently trimmed slightly to add exposure to the consumption (premium and rural) segment.
SEBI has recently notified rules and eligibility for the new asset class – specialised investment funds. Do you see an opportunity in this segment?
We’re very excited about this new asset class, and while many plans are in the works, it’s a bit early to share the specifics. That said, there are a couple of opportunities where investment strategies can be created, such as credit-focused strategies, more concentrated equity, and long-short.
As for setting up a new team, we don’t foresee creating an entirely fresh team. Instead, we’ll enhance capabilities within our existing setup. For example, we already have a factor investing team and in-house expertise in long-short strategies. Our fund managers on the long-only side have experience managing concentrated mandates, and we continue to build on our credit capabilities.
Passive investing and index funds have been gaining traction, with the markets regulator also bringing in ease through MF lite. How will it impact the active management industry?
Passive investing, including index funds and ETFs, is undoubtedly a growing trend and one that’s here to stay. As India’s economy, capital markets, and asset management industry evolve, the range of investment products will continue to expand–both within and beyond the mutual fund space. We don’t see it as a debate between active and passive investing. While our active business remains the dominant part of our portfolio today, we are also seeing significant flows into our passive offerings and want to bring more innovative products in this space.
For instance, we’ve introduced first-to-market factor funds, such as the Edelweiss Nifty Midcap150 Momentum 50 Index Fund, and are also launching a series of Mega Trends ETFs catering to investors looking for curated baskets of stocks aligned to specific themes.
How do you see India’s demographic shaping towards MF investments? Do you think after Gen Z, Gen Alpha and Beta would also find the monthly SIP investments interesting?
India’s demographic story is fascinating, and I see it shaping MF investments in unique ways. Take my own family, for instance—my father’s generation grew up in an India of scarcity, where job security and conservative investments were the norm. My generation, from the 70s and 80s, lived through a transition—we started with conservative investments but eventually learned to take calculated risks a little bit later in life. Now, my son, who belongs to Gen Alpha or Beta, has grown up in an India of abundance. This new generation is naturally more open to taking risks, not just in their careers but also in their investments. They want their money to work harder, not just to beat inflation but to create wealth. While one hopes that they acquire patience over time, mutual funds, especially SIPs, are well-suited for them. They can pick a decent fund and benefit from value cost averaging. In fact, 50% of new investors in the mutual fund industry are young.