Transcript

Ashish Chaturmohta: Thank you.

Akshara Menon: Let’s start off with a very simple question. What is investing? There are a lot of investors who are new to the market after 2020. They haven’t seen much of a market turnout. What does investing mean to them?

Ashish Chaturmohta: Definitely. I have been in this market for more than 18 years and have seen different cycles. One thing I can confidently tell you is that new investors, from a return perspective, might be chasing higher returns because that is what they have seen since 2020. But the new investors are also very information-oriented. They have access to so much data that when I meet people in tier-two or tier-three cities, I can see the change. They want to know "why," they want to understand the business models. They want to understand why the sector is doing so well. That is the rationale and the reason they want to invest, which was not the case in 2006, 2007, and 2008 or when the 2008 drop came.

That is the reason when you look at the DII’s data, it is almost $73 billion which they have poured in in the year 2025, despite the fact that 2025 has not delivered a positive return. There is a lot of variability in returns with different funds, PMS, or mutual fund schemes, but despite that, there is a lot of interest emerging. Second, they are not just chasing the large caps. There is a lot of interest toward emerging concepts or stories. They are ready to invest in a concept where you might not find immediate topline or profit growth or EBITDA, but the understanding is increasing. That is where the confidence is coming to invest in a concept stock. Today’s investor is far more mature than what we used to see in 2006, 2007, and 2008.

Akshara Menon: So convincing today’s investor is a bit easier compared to the previous generation?

Ashish Chaturmohta: It is both. To convince them on a particular sector or theme, you need to be really well prepared. That is the good part of it. Second, they are doing too much study on their own, but the part that is missing is they have not seen the cycles. Sometimes the quality of the business and corporate governance are things they might miss. This comes with experience and that is the only concern I have. When you do concept investing and look into a theme that has serious tailwinds, you might end up buying those stocks, but ultimately businesses are run based on the management. If the management or the corporate governance is not great, even if the business is good, the promoter ethics should be of high regard. There is a lot of work to be done with this new set of investors.

Akshara Menon: Since you have 18 years of experience, you have seen the ups and downs. In terms of markets, what has changed?

Ashish Chaturmohta: 18 years ago, it was more tip-based investing. A lot of people wanted to get into quick buying and sell quickly to make quick returns. That is not the case now. People are chasing stocks that can do well over the next three to five-year period. They are trying to identify companies that can compound at 25% to 30% because the sector or the space is doing well. In fact, companies that have started giving education and information on websites that are freely available are allowing people to get access to data. They can confidently ask: "What is the tailwind? Where is the margin going to come from? Will the drop grow? Are the debt levels manageable?" All these smart questions are being asked today, which was not the case a couple of years back. That is a very big change.

Akshara Menon: Off late, there is a culture of DIIs buying more and FIIs selling. How do you see the sentiment?

Ashish Chaturmohta: If you look at the data for October, FIIs have bought almost $2 billion, but for the calendar year to date, they have sold almost $15 billion. DIIs were buyers in the month of October to the tune of almost $5 billion. For the calendar year to date, they have been buyers to the tune of almost $73 billion. It is offsetting the selling pressure we are witnessing from FIIs. This is not just a 12-month trend; it has been the trend for the last three years. FII holding is below 16%. It has come down by 6% to 7% from their normal holdings.

There is a reason for it: Fed rates are going up and there is currency risk. All put together, the expected return for FIIs needed some extra returns, which was not the case here. This is the reason we saw serious selling from FIIs. But because DII and retail participation has increased so well, it offset the selling pressure. We believe this trend is going to continue. The retail participation is going to increase. They have seen one year of flat returns, but we have not seen any reduction in the SIP inflows. In the month of October, for the first time, we have seen some buying interest from FIIs. Can we say it is a structural trend or a short-term correction to the trend of the last 12 months? It is a first sign. Because of the policy push and the earning growth momentum witnessed in the first half—and the second half is expected to be better—we might see FII buying interest coming back to Indian markets.

Akshara Menon: Do you think Indian markets are more or less correlated with other markets now?

Ashish Chaturmohta: If you see the last one year of data, clearly Indian markets have underperformed global markets, and the underperformance was not small. The MSCI World Market delivered almost 20% return. MSCI Emerging Market returns were 30%. MSCI China delivered 33% return. Indian market delivered just 6% returns on the BSE 500. Small caps delivered a negative return. The outperformance Indian markets showed over other markets in previous years saw some serious profit booking. China, which was underperforming for many years, has started showing interest.

From a valuation perspective, we reached almost 22 times forward P/E multiple. If you look at our gap with the emerging market in terms of valuation, we are trading at a significant premium. That premium has come down. We are in a comfortable position now, not just based on valuation, but because the premium has seen a correction. There will be a lot of buying interest from FIIs, and DII participation is increasing. Mutual funds as a percentage of GDP is below 20% in India, while in the USA it is 150% and the UK it is 80%. There is a lot of scope to grow. The overall industry, the mutual fund industry, and the PMS industry (growing at 20% CAGR) are going to see growth. Participation and liquidity will chase Indian markets. My caveat is that there will be a lot of sector rotation. You cannot just bet on one sector. There will be continuous profit booking in high-valued sectors and a shift toward reasonably valued sectors.

Akshara Menon: Do you see any undervalued sectors where funds are not looking right now?

Ashish Chaturmohta: Manufacturing is a long-term theme and the tailwinds are really strong. Manufacturing as a percentage of GDP is still 14% to 15%. There is scope for it to go up. But the market also rewards growth. Most of these stocks reached an exorbitant valuation in the last three to four-year rally, and then came the election. When the election outcome came, the valuation started seeing softness because earning growth started tapering and budgetary allocations started reducing for some sectors. For railways, there was no incremental allocation, but for defense, there was a reasonably good allocation.

It will be a more sector-specific approach within the manufacturing sector. You cannot say all companies in manufacturing are going to do well. Within power, generation transformation is a very big theme because the compounding cycle can continue for a long time. Battery storage could be a good theme. Selective themes within power can do well, but not necessarily renewables or wind. We have to be very selective. That is my understanding at this point.

Akshara Menon: So it is better to have a bottom-up approach?

Ashish Chaturmohta: Yes. In defense, there are companies where the order book is consistently going up, like electronics companies. There, we are seeing renewed buying interest from institutional investors. But there are pockets of defense not seeing interest because the order inflow momentum has come down and it will take time to execute. You cannot pay 40 or 50 P/E multiple for companies growing at 10% to 13%. If you are paying 40 P/E, the company should grow at 25%. If the top line is growing at 20% to 25%, the profit growth should be better than the top line growth. Markets will reward those. But where multiples are expensive and growth is subpar, the market will punish those companies even if the sector is a sunrise sector.

Akshara Menon: Is there any sector currently that fund managers are not looking into, but JM is?

Ashish Chaturmohta: One sub-sector is banking. Everyone is bullish about banking because of valuation comfort—private banks are trading at 2.1 times price-to-book. Credit growth has moderated but is expected to grow because the CRR has been reduced and the repo rate has been reduced. But a lot of people missed PSU banking. We have been overweight on PSU banks for the last year and a half. Valuation comfort was very good. Most PSU banks are today trading below one-time price-to-book.

Look at the credit growth; they have been growing at 13% to 14%. The operational performance versus private banks is almost in line, but the valuation is at a significant discount. There is a rerating happening. Despite a challenging environment, credit growth was 13% to 14%, NIMs are comfortable, and credit quality is in a comfortable position. There is a rerating going to happen in PSU banks, but their weight in the overall banking index is less than 20%. A lot of fund managers try to be underweight on PSU banks and overweight on private. But in the last three to six months, the outperformance of PSU banks versus private has been very good. Within a large sector, there is a sub-sector with the possibility of better performance.

Akshara Menon: Is there any sector you are currently avoiding?

Ashish Chaturmohta: You will see very little or complete underweight positions in the IT space. It is a big weight in the index, almost 14% to 15%, but we are not comfortable with the situation where discretionary IT spending is missing and constant currency growth is missing, yet valuations are at reasonably high levels. Most of these large-cap IT companies have missed the bus on AI, Cloud, and ML. Our focus on IT would be on small and mid-cap companies trying to be niche in new-age IT. We are very underweight on the overall IT sector.

Akshara Menon: Will this situation continue?

Ashish Chaturmohta: Where is the growth coming from? Globally, the IMF downgraded the growth outlook for the entire world except India, where they revised it toward 6.6% from 6.4%. India is going to be the fastest-growing economy. Within India, the growth is domestic, not export-oriented. Export numbers have started coming down. There are challenges because of currency risk and collapsing demand. One needs to focus more on domestic themes and avoid export-oriented themes except for import substitution or something like CDMO/CRDMO.

There is a substitution happening in the US. The cost of R&D is going up and margins are shrinking. With the new US Biosecure Act, supply chain diversification will happen. India could be a big alternative to China. Indian CRDMO players have become efficient in terms of cost and regulatory compliance. They are transitioning from pure API players to decent CRDMO players. That is where the size of opportunity lies. Within exports, we would bet on themes like CRDMO rather than being bullish on the entire export opportunity.

Akshara Menon: Let’s talk about the PMS industry. It is at 8 lakh crore plus in AUM. Is it for niche clients or a necessity?

Ashish Chaturmohta: As participation and allocation from investors increase, you will see renewed interest in PMS. It is a niche product where you can do a lot of concentration. You can be positive on certain themes without buying entire sectors. You can focus on three, four, or five high-growth themes and construct your portfolio around them. Product proliferation will come down and the focus will be on alpha generation, risk management, and transparency. Bringing transparency about why certain themes are being bought will create interest.

There will be subsets created within PMS—thematic themes, factor-based investing, and rule-based products. People are now talking about technical products in PMS because it is rule-based. In our product, we do a combination of fundamentals, technicals, market dynamics, and psychology. It is a style where we give weightage to all different aspects of the market.

Akshara Menon: Gold has rallied a lot, then dipped. Are you bullish on gold?

Ashish Chaturmohta: From our portfolio perspective, we had an allocation to precious metals like gold and silver. If you look at the long-term history, gold has compounded at 11% to 12% for many years. It creates a good hedge against inflation and geopolitical uncertainty. In an environment with Russia, Ukraine, and US-China issues, central banks have started accumulating gold. This is a long-term cycle supportive of precious metals.

Gold has seen a 52% rally in the last one year. Silver has given a 68% rally after underperforming for 18 to 20 years. After this strong outperformance, there will be periods of profit booking and consolidation, but the long-term trend is positive. One should have a reasonable technical allocation toward precious commodities.

Akshara Menon: We should thank our grandmothers because gold existed before equities. Moving to your strategy, APEX PMS has given over 20% CAGR since inception. What contributes to this?

Ashish Chaturmohta: I call this a very active fund management strategy. I have been tracking markets for many years and realize there is no one sure-shot way to make returns. There are times when you should invest only in Nifty 50 companies. There are times you should be in small and mid-cap. In 2018, small and mid-caps corrected more than 40% while large caps were flat. The portfolio has to be a balance of large, mid, small, and micro-cap with reasonable balance.

Active management is crucial. In 2014, the pharma sector peaked and took seven to eight years to reach that level again. Markets gave positive returns in that period, but a large sector underperformed. Maruti corrected 40% to 45% from its peak while markets were going up. PSU banks peaked in 2011–12 and took 11 to 12 years to reach that level again, but during that same period, ICICI and HDFC continued to deliver 18% to 20% CAGR. We need active management and sector rotation. We cannot be out of the market, but we must rotate. The foundation is fundamental, but the timing, weightage, and churn depend on technicals, market psychology, and dynamics.

Defense as a sector: the government talked about reforms from 2014 to 2019, but few fund managers had an allocation. Post-Russia-Ukraine war, the theme gained sense as people realized the importance of being self-reliant. Stocks trading at 12 to 14 P/E went to 40 or 50 times. It is about sector rotation. If you do not keep pace, you might get stuck at a higher valuation because a stock delivered good returns in the last five years. Those stocks might see a bigger correction. We need continuous rotation.

Akshara Menon: How do you look at the churn of this portfolio?

Ashish Chaturmohta: There has to be a balance between buy-and-hold and technical opportunities. Typically, 50% to 60% of our portfolio is buy-and-hold. 40% to 50% depends on market dynamics. If dynamics indicate churn will help generate better returns, it can go to 50%. If markets are consolidating and there is no serious buying interest, the churn will come down. Churn is a function of alpha generation and risk management. It is important to ride the winners but cut your losers at the right time. We try to book losses early but ride winners as much as we can.

Akshara Menon: What does an investor's portfolio look like today?

Ashish Chaturmohta: Currently, our portfolio has almost 55% weight in the large-cap space, 20% in mid-cap, and the balance in small and mid-cap. Small and mid-cap variation is between 25% and 35%. Large-cap or Nifty 200 is at a bare minimum of 50%. Large caps are better placed from a valuation and earnings visibility perspective. If FII interest returns, it will support large caps. Banks constitute 33% of the index weight and are in a comfortable valuation zone. We are a little overweight in large caps.

We are not firm believers in keeping too much cash. We avoid cash except for situations like COVID or an India-Pakistan war. Our style of managing risk is sector rotation and buying Nifty puts. Hedging is very important to minimize the drawdown.

Akshara Menon: Rapid fire: If you had to share a coffee table with someone in this industry, who would it be?

Ashish Chaturmohta: There are many names, but Peter Lynch is one guy whose books I have been reading and whose style I have been following. I am a growth investor rather than a value investor.

Akshara Menon: If you were not a fund manager, what would your profession be?

Ashish Chaturmohta: After completing my CA, I thought I would be a teacher. I loved teaching, but the stock market was my second-best choice.

Akshara Menon: If you were to metaphor your fund management with a movie, what would it be?

Ashish Chaturmohta: I think Three Idiots would be the movie. It is about chasing your dreams. I believe that every day we are in a learning process. Even today, we feel that there is so much to learn and so much to understand. Three Idiots is something where there were a lot of new learnings, and it is one movie which I really liked.

Akshara Menon: Thank you. With that, we have come to the end of the session. You have given insightful information on the markets, on the products, and also a bit about yourself to understand how you are more than just a fund manager.

Ashish Chaturmohta: Thank you, Akshara. Thank you for inviting me on the show. Thank you to the viewers here.