Nitin Agarwal, CEO, Mutual Funds, InCred Money, believes the budget must encourage private sector investment while maintaining fiscal discipline. He says the government must adhere to current fiscal deficit targets even if it requires containing revenue expenditure growth. Apart from his Budget expectations, Agarwal also shared his views on the FII-DII trend, mutual funds, and gold in an interview with Mint.
What are your expectations from Budget 2026? What should the government announce to keep the economy in solid shape amid geopolitical chaos?
India’s economy has achieved a robust 8% growth in the first half of FY26, demonstrating remarkable resilience.
For Budget 2026, I expect a balanced approach prioritising three key areas:
First, sustained capital expenditure is critical. The government allocated nearly ₹11 lakh crore for direct capital expenditure in FY26, representing 3.1% of GDP. This should be maintained to crowd in private investment, particularly in infrastructure sectors.
Second, consumption stimulus through targeted tax relief. The government focuses on boosting consumption to kindle economic growth, with slight tax slab relaxations expected.
This is essential given moderate consumption growth. We saw the initial effect of the GST rate reduction, and thus, a further relaxation in income tax should provide a key catalyst to revive consumption in the economy.
Third, export competitiveness measures. Providing additional incentives and benefits for exports may improve overall economic performance and the balance of trade amid volatile geopolitical conditions.
From a fund management perspective, the transition from a $4 trillion to a $5 trillion economy will not be determined by how well risks are contained, but by how willingly capital is deployed.
The budget must encourage private sector investment while maintaining fiscal discipline—the current fiscal deficit target should be adhered to even if it requires containing revenue expenditure growth.
DIIs’ equity inflows were at a record level in 2025, while FIIs sold off. What led to this diverging trend?
This divergence represents a historic shift in market ownership. DIIs invested over ₹7 trillion in Indian stocks during 2025, while FPIs pulled out over ₹2 trillion from the equity segment.
FII ownership has shrunk to a multi-year low, while DII holdings first surpassed FIIs in the March 2025 quarter.
The divergence stems from several factors:
For FII outflows: Global investors faced competing attractions from US markets driven by AI investments, elevated US interest rates making emerging markets relatively less attractive, and concerns about India’s premium valuations.
The AI-led surge in a few US mega-caps is pulling global capital, leaving emerging markets “under-owned”.
For DII inflows: Robust SIP contributions and growing insurance and pension fund participation sustained momentum despite volatile global conditions.
Monthly SIP inflows reached approximately ₹30,000 crore per month, providing a strong and resilient counterbalance to volatile outflows.
Importantly, FIIs poured $1.2 billion into domestic IPOs in October 2025, the second-highest monthly amount in 2025, marking the fourth consecutive month where FIIs invested more in the primary market than the secondary one.
This suggests FIIs aren’t bearish on India’s growth story but are being valuation-selective.
How are the current macro trends and global cues shaping mutual fund strategies?
Shift toward diversified and defensive allocations: A major strategic shift has been toward multi-asset allocation.
Multi-asset allocation funds, which balance equity, debt and other assets, delivered superior performance relative to many standard equity categories in 2025, benefiting from the rally in precious metals.
Fund managers are increasingly using dynamic gold allocation, as gold acts as a natural hedge to equity, often rising when equity is volatile, inflation increases, or certain currencies depreciate.
Debt fund positioning for the rate cycle: Shorter-duration debt funds have been a strong bet in the rate-cut cycle scenario.
Atmanirbhar Bharat themes: Investments focused on India-specific stories, as the world is moving away from globalisation towards protectionism.
How can retail investors navigate changing macro conditions and evolving mutual fund regulations?
Retail investors should adopt a disciplined, multi-faceted approach:
Maintain SIP discipline: SIP investments increasingly became the default investment route, with monthly contributions reaching nearly ₹30,000 crore.
This systematic approach reduces market timing risk and leverages rupee-cost averaging during volatility.
Optimise costs under new regulations: The SEBI (Mutual Funds) Regulations, 2026, separated statutory levies from the total expense ratio and reduced brokerage caps from 8.59 basis points to 6 basis points for cash market transactions.
Investors should review their holdings and consider switching to lower-cost options where appropriate.
Embrace diversification: Would recommend a multi-asset and multi-strategy approach for retail investors to navigate market cycles effectively.
Focus on risk-adjusted returns: While small-cap and mid-cap averages lagged, disciplined investing and strategy selection delivered competitive outcomes. Investors should prioritise consistent performance over headline returns.
Do you think the relevance of quant-based strategies is growing? What does it indicate?
Yes, quantitative strategies are experiencing significant growth in India, and this represents a fundamental maturation of our capital markets. The evidence is compelling across multiple dimensions.
Quant investing had always been a Western world phenomenon; however, India is now at an inflexion point in quant investing.
Evident from the AUM growth in smart beta funds, which has grown nearly 30 times in the last five years.
Quant investing is still in the nascent stage with a proven thesis of adding a significant alpha to a client’s portfolio.
The specialised investment fund is another welcome move, which will help in the necessary growth and mass adoption of quant-based strategies.
Index providers have launched a plethora of smart beta and factor-based indices, offering investors a richer and more nuanced set of options for portfolio construction, as the ability of active managers to generate alpha in the large-cap segment has declined.
India has a growing ecosystem of smart beta indices and ETFs tracking factors like value, momentum, quality, low-volatility, and equal-weight, offering a rules-based middle path between purely passive and fully active management.
Do you think gold has now become an active investment class, similar to equities?
Gold’s role has evolved significantly—it’s transitioning from purely defensive hedge to a more dynamic strategic asset class, though it retains distinct characteristics from equities.
Gold was one of the best-performing asset classes in 2025, driven primarily by ongoing concerns about inflation and ongoing gold purchases by global central banks.
Central bank behaviour provides the clearest indicator of gold’s institutional acceptance, with official sector purchases driving gold’s proportion of global reserves above the euro for the first time in decades.
This creates a structural demand floor supporting sustained appreciation.
Multi-asset funds use dynamic gold allocation, with gold acting as a natural hedge that often rises when equity is volatile, inflation increases, or currencies depreciate.
Professional managers are actively adjusting gold exposure based on market conditions rather than maintaining static positions.
While it will be difficult to draw a forward path, we believe that precious metals need to be considered more as a fixed allocation of the portfolio rather than a discretionary bet from the overall asset allocation perspective.
Read more stories by Nishant Kumar
Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of the expert, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
