Pockets of value are emerging, says Navneet Munot of HDFC AMC

Navneet Munot, Managing Director and CEO of HDFC Asset Management Company, oversees one of India’s largest mutual funds that manages equities worth Rs 5 lakh crore. In addition to fund-of-fund schemes and exchange-traded funds, it offers a comprehensive range of mutual fund schemes across equity, debt, and hybrid categories.

Munot speaks to BT about navigating the downturn in India’s benchmark indices, driven by selling from foreign institutional investors (FPIs). Edited excerpts:

There seems to be a lack of vibrancy (in the market). What are your thoughts?

It depends on one’s perspective. If we look at the last six months since the peak in September 2024, there has undoubtedly been a decline. However, if we consider a broader horizon—say, three or five years—investors have still seen significant gains. Five years ago, the Nifty dropped below 8,000 and has now grown nearly 2.7 to 2.8 times that value. Small and mid-cap stocks, though having undergone corrections in the last six months, have more than tripled over the past five years.

Short-term market movements are difficult to predict. A few months ago, we noted that valuations were high, with prices outpacing fundamentals and market narratives exceeding actual numbers. Now, after various corrections, market valuations have adjusted.

Going forward, investors who deploy capital wisely are likely to benefit in the long term.

SIP (Systematic Investment Plan) contributions have slowed, and net inflows have decreased over the past six months. What’s your assessment of the situation on the ground?

A good indicator is the recently released SIP data.

When markets are exuberant, we often see an influx of momentum-driven capital, which can inflate flows. However, compared to last year, both lump-sum equity investments and SIP flows have increased. This is reassuring and reflects the industry’s sustained efforts, in collaboration with regulators, to promote long-term investment discipline, despite market fluctuations.

What’s your current outlook on the correction? How much more downside do you anticipate, and how is your team navigating this phase?

Markets operate much like a pendulum, swinging between extremes of greed and fear. Recently, we saw excessive optimism, followed by a correction driven by various factors.

Predicting short-term movements is always challenging, but after this correction, we are beginning to see pockets of value emerging. Many stocks that had doubled or tripled in value—where we previously lacked the conviction to invest—have now corrected significantly, creating potential investment opportunities.

Where are fresh inflows being allocated?

From my discussions with fund managers and investors, the sentiment has shifted. A year ago, there were concerns about overvaluation. Since then, we have seen corrections—15% in the Nifty, 20% in mid-caps, and 25% in small caps. Some individual stocks have even dropped 40-60%.

Interestingly, many of these stocks were the ones we refrained from buying at their peak valuations. Now, with more reasonable valuations, we see investment opportunities emerging.

Millions of young investors are entering the market, full of faith in India’s growth story but slightly disheartened by recent market fluctuations. What advice would you give them?

Start early, invest regularly, and stay disciplined. Young investors are well-informed and optimistic. Their risk appetite and aspirations are commendable. The key formula for wealth creation is SIP: Sound investment, Time, and Patience. If you follow this, long-term success is inevitable. I’m particularly inspired by the ambition of young women in smaller towns who are embracing financial independence.

The recent Budget gave Rs 1 lakh crore in annual tax benefits, putting more disposable income in people’s hands. How do you see this impacting the economy, and which sectors stand to gain from this?

In recent years, government-led capital expenditure has been a major growth driver. This budget, however, also includes tax benefits aimed at boosting consumption. The slowdown in urban consumption over the past few quarters needed attention, and these tax cuts should help revive demand.

Increased consumption leads to higher corporate investment, strengthening the economy. Additionally, given India’s strong savings culture, a portion of these funds is likely to flow into capital markets, benefiting the overall investment sentiment.

@shail_bhatnagar