The inflows into mutual fund industry has been growing leaps and bounds which has helped small and medium sized fund houses to grow faster than their established peers. However, the equity market has hit a air pocket sending chill wave among first time investors. Prateek Agrawal, MD and CEO, Motilal Oswal Asset Management spoke to businessline on the way ahead.
The market outlook can be broken down into two parts. From an index perspective, large-cap valuations are currently fair, which implies that returns are likely to align with earnings growth. If the earnings growth is going to be 12-14 per cent, the base level growth is expected to be around in that range.
Global and domestic rate cuts could further influence these returns as they impact corporate profitability. However, this period presents an opportunity to focus on generating alpha by targeting sectors and stocks outside the index.
Several emerging sectors, such as electronic manufacturing, new-age technology, defence, healthcare, and luxury consumption, are experiencing rapid growth. These sectors grow faster and have the potential for sustained earnings growth. Many of these opportunities lie in stocks that are not yet part of the index, making them attractive for long-term investors.
 Why have some MF schemes focusing on new-age technology struggled to perform?
The challenges faced by some schemes can be attributed to market dynamics and portfolio strategies. At our fund house, we emphasise on highly active portfolio management and growing with our investee companies. This has allowed us to deliver a positive investment experience.
Our approach involves booking profits when a stock performs exceptionally well and reallocating strategically. While this may leave some upside untapped in the short term, it ensures balanced growth over time.
We have seen success in renewables and new-age technology and sectors like defence and electronic manufacturing have also performed well recently. Luxury consumption, which includes jewellers, real estate, malls, and liquor, has delivered robust returns, underscoring the value of a diversified approach.
Why is your fund house less inclined towards old-economy sectors like steel, cement, and commodities?
Our investment philosophy is grounded in earnings growth. Sectors with earnings growth below the index average typically underperform over time. Traditional old-economy sectors such as steel, cement and commodities often deliver returns similar to the index, which limits their appeal for growth-oriented investors.
We focus on sectors with higher earnings potential and sustainable growth while maintaining a disciplined approach to valuations. This strategy naturally steers us towards emerging sectors rather than old-economy stocks.
 Why is your fund house bullish on passive funds?
Passive funds cater to a growing segment of investors, including HNIs, family offices and institutions, who prefer making independent sectoral or thematic calls. These funds are cost-efficient, simple and increasingly relevant for pension funds, institutional investors and younger investors seeking short-term sectoral exposure.
 Do you expect FPIs to reconsider India for investments?
FPI flows have become less significant in shaping market movements. Even during periods of substantial FPI outflows, the market has demonstrated resilience, with major indices experiencing limited declines and small-cap stocks often showing greater stability.
This shows the increasing independence of our markets from global capital flows and strong underlying fundamentals. For domestic investors, FPI-driven market corrections frequently present attractive entry points.
What is your view on IPOs amid concerns about high valuations?
The IPO market remains an area of interest for us. Our fund house has actively participated as an anchor investor in several IPOs and continues to invest selectively in strong companies post-listing.
The pipeline will be strong. Many promoters have found IPOs a great way to distribute family wealth. Most companies are getting listed not just for debt repayment. Most of them have zero debt and a healthy balance sheet. Investors have to be choosy and avoid companies that are overvalued in IPOs.
 What is your perspective on same-day settlement?
Same-day settlement is a welcome development for the mutual fund industry. However, we are not sure whether funds will be permitted to reinvest the realised funds on the same day. The two-day settlement period currently creates a liquidity gap, introducing an element of risk.
If same-day settlement allows seamless buying and selling, it will enhance liquidity management and reduce associated risks, ultimately benefiting fund performance and investor outcomes.
Published on December 24, 2024
