While declining to comment on possible budget measures, Anthony Heredia, managing director and chief executive officer of Mahindra Manulife Mutual Fund, said that policy measures aimed at boosting foreign capital flows, either directly through tax incentives or indirectly, could help create economic momentum. After underperforming global peers for a year amid high valuations and low earnings growth, India’s relative valuations are beginning to turn attractive in dollar terms, he said in an interview. Edited excerpts:
1) How do the Q3FY26 (October-December) earnings early-bird numbers look so far? Revenue is up but net profit growth has lagged….
It is still early days in terms of evaluating overall Q3 earnings, with most of the earnings being reported by the larger companies to date. We don’t expect much of a negative surprise from earnings that are still to come. There has been a one-time effect of provisions to comply with new labour laws, which would cause the differential between revenue and profit growth numbers.
2) Do you expect mid-caps to outperform large-caps this year? Which sectors are you focusing on? Or do you feel a bottom-up approach is apt ?
For a while now, our portfolio stance has been large-cap biased, and that call has been principally valuation-driven. That said, we believe that there are opportunities across sectors, and currently favour financials, consumption, information technology (IT) and commodities. Also, the manufacturing export-oriented businesses could warrant a review, basis the outcomes of free trade agreement/bilateral trade agreement details with the European Union and the US. Given that sector rotation is playing out over much shorter time cycles, our core approach continues to be bottom-up.
3) If you had an incremental ₹100 to invest now, how would you allocate it?
Investing always needs to be in context of what you are seeking to achieve and in what time frame. If one had a long-term view, say five years or more, I would expect to have over 40-50% in diversified flexi or multi-cap portfolios, 25-30% in multi-asset funds, which should cover gold and silver exposure, with the balance invested in international equities split equally between emerging markets, the US and select European markets.
4) How have your mid and small-cap funds performed over the past year? Is there any bias for multi-asset allocation approach?
As they say, successful investing has a lot to do with skill, but you also need a healthy dose of luck. And we seem to have been fortunate to be blessed with both in recent times. All of our equity funds, including mid and small-caps, have done well over the past year. That is also the case with our multi-asset allocation fund, and to my mind, given the recency bias that most investors have to gold and silver, our view is that multi-asset products should be at the core of future incremental allocation, at least over the next couple of quarters.
5) Any hopes in terms of policy or reforms ?
We think that a lot of heavy lifting to boost manufacturing, infra capex and more recently consumption has been done, and we should see results playing out in the medium term. What may require more attention at this point is an impetus to foreign capital flows, and anything that can be done in that regard, either directly via taxation measures or indirectly will help create economic momentum. Additionally, if there can be measures that create a positive tailwind for bond markets, that would also help.
6) The way markets are unravelling amid the global headwinds and an elusive US-India trade deal, how will investor appetite be for IPOs and for investments through mutual funds (MFs) this year ?
We expect flows to moderate for fresh offerings. At the end of the day, this is a demand-supply game, and the extensive supply of IPOs (initial public offerings) is starting to weigh on secondary markets. The recent global headwinds too play a role in reducing the degree of positive sentiment. In that context, we would see appetite dropping, and investors becoming a lot more selective around where they chose to invest. Within MF, we don’t see a significant change given the large SIP anchor flows but expect a preference towards multi-asset and flexi/multi-cap diversified funds.
7) One gets the feeling that retail money is being used to give FPIs exits at lofty valuations. What’s your argument here in terms of return expectations?
Most of these arguments tend to happen at market declines. If you look over the long term, Indian equities have delivered, and all investors who have remained invested, whether domestic or foreign, have benefited. Going forward, I would anchor my expectations from equity to be 2-3% higher than nominal GDP growth.
8) Are we doing enough to address the challenges posed by AI? Global capability centres are one thing, but the investments required are huge. What’s your feeling?
In our view, there is a lot happening, but not everything is being telegraphed for public consumption. My feeling is that this will evolve, and the winners will transition from only the producers of AI to others in the value chain, including the consumers of AI as well. And so, the story five years out may be very different in terms of what the impact of AI has been, relative to today. I see so many similarities between how the use of internet evolved from the early 2000s to today, and expect to see the same for AI, albeit in a much shorter time horizon. The challenge is that quite a few AI providers are competing to create capacities to serve customers in future. Thus, the capex is upfronted while monetizing revenue and profit pool participation is in the future and, hence, it is tough to start picking eventual winners. For now, the ecosystem of vendors for AI (chips) and vendors for AI companies (data centre, power, etc.) look a bigger beneficiary till the consuming AI businesses are able to monetize.
9) From your interactions with foreign investors, what’s the feeling you get on strategic as well as portfolio investments?
I think that the recent geopolitical events, and volatility in bond and currency markets, have meant that people are being more deliberate about committing future capital. From an FDI perspective, I think you will see momentum pick up as global macros get more stable. The core premise of Indian economy offering a wide consumer base with a positive demography, reform agenda and creation of world-class infrastructure, global opportunity for manufacturing remains intact. In terms of FPI flows, especially into equity, I think it’s a matter of when, and not if. Flows into emerging markets have been strong over the past six to nine months, at some point, it will turn for India as well. Indian markets had run up ahead of quite a few emerging markets in terms of valuations during calendar year 2023 (CY23) and CY24. In CY25 we saw a strong outperformance by many of those emerging markets and hence India looks to be almost there in terms of relative valuation attractiveness post the time and price correction in dollar terms.
