Baroda BNP Paribas Mutual Fund in August announced the appointment of its new CEO Madhu Nair. He has nearly 3 decades of experience in the financial services and mutual fund industry and has been associated with Union Mutual Fund, HSBC Asset Management, Invesco and Kotak Mutual Fund.
ET Now’s Rakshita Madan and Sushil Tripathi caught up with Nair on his vision for Baroda BNP Paribas MF, going ahead, and the market valuations. He also talked about AI’s role in stock selection, adding new products such as SIFs, and asset allocation in Gold.
Here are edited excerpts from that interview:
Q1. As you have joined newly, we would like to understand what are the opportunities you see here and what are the challenges? What is the road ahead for Baroda BNP Paribas Mutual Fund?
I see the opportunity as significantly larger than the challenges.
Baroda BNP Paribas Mutual Fund has several strong building blocks – the strength of two reputed sponsors, an established brand, an existing investor base and a capable investment platform. The opportunity now is to bring greater focus and sharper execution across these strengths.
Ultimately, India’s economic progress should translate into financial prosperity for its households. We would like Baroda BNP Paribas Mutual Fund to play a meaningful role in making India’s Amrit Kaal become every Indian household’s Amrit Kaal.
Q2. How do you read the current market scenario?
We would look at the two markets somewhat differently.
The enthusiasm in the primary market reflects the continuing confidence around India’s entrepreneurial ecosystem and the ability of businesses to access capital. But as investors, we have to distinguish between a good company and a good investment at a particular price.
The secondary market is perhaps reflecting a degree of caution around valuations, earnings expectations, and the pace at which some parts of the market have already performed.
For us, as asset managers, we need to remain focused on earnings quality, cash flows, management quality, competitive advantages and valuations rather than simply following market momentum.
I would also caution investors against interpreting a subdued secondary market as a reason to abandon equities. Markets don’t move in a straight line. The right question is not whether the market will be higher next month; it is whether the businesses we own can compound value over the next five to ten years.
Q3. Equity vs debt vs gold – what should be the portfolio allocation in the current market?
Equities are the principal engine of long-term wealth creation and therefore it should have an important place in portfolios with a sufficiently long investment horizon.
Debt provides stability, income and capital preservation, particularly as investors approach their financial goals. Gold has a different role – it can provide diversification and can be useful as a hedge during periods of macroeconomic or geopolitical uncertainty.
So, I don’t see equity, debt and gold as competing. They perform different roles in a portfolio.
The biggest mistake investors can make is to chase yesterday’s winner.
If equity has done very well, that doesn’t automatically mean you should sell equity. If gold has rallied sharply, it doesn’t mean you should suddenly make gold a large part of your portfolio. Good asset allocation is about having the right mix for your objectives and staying disciplined through market cycles.
And for most investors, asset allocation and disciplined investing are more important than trying to time the market.
Q4. Some of the fund house’s equity schemes have performed strongly in recent months. Given this performance, what is your strategy to attract more and more investors?
Strong performance is obviously very encouraging, but performance is the beginning of the conversation, not the end of it.
Our first responsibility is to ensure that the performance is backed by a sound and repeatable investment process. We don’t want to sell yesterday’s performance; we want investors to understand what created that performance and why the investment philosophy can remain relevant through different market cycles.
The third piece is investor experience. An investor who understands the product, has good experience and stays invested through cycles is far more valuable than an investor who comes in chasing recent returns and exits when the cycle changes.
We want to build sticky AUM, not just large AUM.
Sustainable scale will come from the combination of investment performance, distribution capability and investor trust.
So yes, strong performance gives us an opportunity. But our job is to convert that opportunity into long-term relationships rather than short-term flows.
Q5. Some of the fund house schemes are 10 to 15 years old or even older. However, their AUM has not grown much. Would you like to make any changes or bring in some reforms in these schemes?
I think we should look at the product shelf objectively, but I wouldn’t make decisions simply because the scheme is old or because its AUM is currently small. Age or size of the scheme cannot be a deciding factor.
The important questions are: Does the scheme have a clear purpose? Is the investment proposition differentiated? Is there a strong investment process behind it? And does it address a genuine investor need?
There may be schemes where the underlying investment capability is good, but the proposition hasn’t been adequately communicated or distributed. In those cases, the answer could be better positioning, sharper communication and greater distribution focus.
Equally, if we find products that overlap significantly with other offerings or don’t have a sufficiently differentiated role, we should be willing to take appropriate decisions in the interest of investors and within the regulatory framework.
We want our product architecture to be simpler, sharper and more purposeful.
Ultimately, we would like every scheme on our shelf to have a very clear answer to the question: “Why should an investor own this?”
If we can answer that convincingly, we have the foundation for building meaningful scale.
Q6. AMCs have started discussing the use of AI technology for stock selection. What is your view on this? Do you have any plans to use AI?
We think AI is going to become an increasingly important capability in asset management, but we would distinguish between using AI to enhance investment decision-making and asking AI to make investment decisions on its own.
The amount of information available to investment teams today is enormous. AI can help us process that information faster, identify patterns, analyses large datasets, monitor portfolios, generate investment insights and potentially identify risks that may otherwise take considerable time to uncover.
So, our philosophy would be AI-augmented investing, not AI-replaced investing.
We will certainly explore how AI can strengthen our investment and operating processes. But we will do it thoughtfully, with appropriate governance, validation, data quality and risk controls.
Technology should make our investment teams better, faster and more informed. It should not remove accountability from the investment process.
Q7. What kind of schemes is the fund house considering adding to its portfolio going forward?
We will certainly look at expanding our product capabilities, but I don’t believe that a larger product shelf necessarily means a better product shelf. We don’t want to launch products simply because the category is fashionable.
There are several interesting opportunities emerging across the investment landscape – including newer structures such as SIFs, alternative investment strategies, credit-oriented opportunities, private-market solutions and the possibilities emerging from GIFT City.
But each of these will need to pass the same test: What investor need are we solving? Do we have the investment capability? Can we build a differentiated proposition? And can we scale it responsibly?
The traditional mutual fund business will remain at the core of what we do. At the same time, we should be prepared for the evolution of India’s savings and investment landscape.
