Navigating Market Consolidation: Insights from Bajaj Asset Management

A prolonged consolidation in Indian equities has tested investors’ patience. But Bajaj Asset Management’s Managing Director Ganesh Mohan tells Sameer Bhardwaj that this is precisely when disciplined investors should stay the course.

Your equity strategies are trying to establish a track record in testing times. What has been your investment approach through the market correction over the past two years?

Our investment philosophy is built around generating alpha through three distinct sources of edge. The first is the information edge, but as information has become more widely available, that advantage has diminished over time. The second is the quantitative edge, where we use data, research tools and proprietary models to analyse information. The third, and perhaps the most important today, is the behavioural edge. Markets often overreact or underreact because of fear and greed, creating opportunities for disciplined investors. We also use behavioural analysis to identify and minimise biases in our own decision-making. We believe that combining quantitative research with behavioural insights helps us navigate volatile markets.

Which sectors are emerging as the biggest winners and losers?

The first quarter earnings season has been broadly encouraging. Capital goods, diversified financials, metals and mining, telecom, and auto-related sectors have delivered healthy results. Despite higher input costs, auto companies have performed well, while higher commodity prices have supported metals and mining. Telecom earnings have also benefited from rising average revenue per user (ARPU). On the other hand, FMCG (Fast Moving Consumer Goods) and IT (Information Technology) services have remained relatively subdued, although we are beginning to see early signs of improvement in both.

Foreign portfolio investors turned buyers in July. Does this mark the beginning of a sustained trend?

It’s too early to say that. FPI flows are highly tactical and tend to move towards markets offering the best opportunities globally. Whether the recent reversal sustains will depend on geopolitical developments, impact on rupee and how long India can absorb elevated dollar-denominated crude oil prices. That said, India’s long-term investment case remains intact. As global investors increasingly look beyond short-term themes, India’s structural growth story could attract more patient capital. One factor working in India’s favour is that the Reserve Bank of India (RBI) appears to be in a relatively stronger position to manage pressure on the rupee. Expected FCNR(B) or Foreign Currency Non-Resident Bank deposit inflows and tax concessions for foreign investors investing in government securities provide the central bank with greater flexibility to deal with currency-market volatility. A stable rupee reduces currency risk for overseas investors.

What are the biggest risks for Indian equities over the next 6-12 months?

A prolonged conflict in the Middle East could push up crude oil prices, weaken the rupee and widen India’s current account deficit. These are risks we continue to monitor closely. The second concern was the monsoon and the possibility of El Nino affecting rural demand. Fortunately, that risk appears to have moderated and, so far, rural demand has been resilient.

Where are better investment opportunities today—large-, mid-or small-caps?

Opportunities exist across all market-cap segments, but investors need to adopt a bottom-up approach. Large-cap valuations have become more comfortable after the correction, while mid- and small-cap companies continue to offer stronger growth potential. One way to participate across these opportunities is through a good flexi-cap fund with meaningful exposure to large-, mid- and small-cap companies. A well-diversified flexi cap portfolio can provide balanced exposure across these segments.

More than half of diversified equity funds have generated SIP (Systematic Investment Plan) returns of less than 5% over the past two years. Do you expect SIP breaks to rise?

Equities should never be judged over short periods. Our advice is simple: stay invested. Investors who discontinue SIPs during difficult phases often miss the eventual recovery, which contributes to long-term wealth creation. Equity investing should ideally have a minimum horizon of 3-5 years. We’ve also observed that investors who work with financial advisers tend to remain invested for longer. Advisers help them focus on their financial goals.

If an investor has Rs.10 lakh to invest for the next three-five years, how should the portfolio be structured?

India continues to be an attractive market for investors with a three to five-year horizons. After the correction over the past two years, valuations have become relatively more reasonable. At the same time, multi-asset investing is becoming relevant because no single asset class outperforms across every market cycle. While there is no one-size-fits-all allocation, our research suggests that a portfolio comprising about 70% equity, 20% debt and 10% commodities offers an attractive balance between risk and return for a typical retail investor. For investors with larger investable assets, diversification can be expanded further through products such as Specialised Investment Funds (SIFs), Portfolio Management Services (PMS), Alternative Investment Funds (AIFs) and international equities.

Your outlook on gold and silver?

We are more constructive on gold than silver. Central banks continue to accumulate gold as they diversify away from excessive dependence on the US dollar, and that structural demand remains supportive. Silver is both a precious and an industrial metal. While it can deliver stronger rallies, its demand is relatively more speculative, making it more volatile than gold.

On the debt side, which part of the yield curve looks most attractive?

We currently see better opportunities at the shorter end of the yield curve. Longer-duration bonds could remain under pressure, particularly if the US Federal Reserve resumes raising interest rates.