Mr. Venugopal Manghat
Chief Investment Officer - Equity, HSBC Mutual Fund.
Venugopal Manghat is the Chief Investment Officer (CIO) - Equity of HSBC Mutual Fund. Venugopal was previously Head - Equity Investments, L&T Investment Management Limited from May 2016 to Nov 2022 and was Co-Head - Equity Investments, L&T Investment Management Limited from Apr 2012 - Apr 2016. Prior to 2012, he was Co-Head - Equities, Tata Asset Management Limited, India from 1995 - 2012. His educational qualification is MBA Finance, B.SC.
Please note we have published the answers as it is received from the Fund Manager of Edelweiss Mutual Fund.
Q1. Recent geopolitical tensions in the Middle East have once again raised concerns around global market volatility. From the perspective of Indian equities, do such events generally result in only short-term market disruptions, or can they have any lasting implications for the long-term outlook of the Indian economy and markets?
Ans:1 Indian markets have historically "climbed the wall of worry" through a wide range of internal and external concerns such as wars, commodity spikes, tech bubble, Global Financial Crisis, and Covid. Such events often result in market corrections in the near term, but markets recover as fundamentals reassert themselves.
Importantly, periods like these tend to separate the 'wheat from the chaff'. High-quality companies, i.e., those with strong balance sheets, disciplined capital allocation, resilient business models, and credible management teams, often use volatility to consolidate market share, strengthen stakeholder relationships, and emerge in a better competitive position once conditions normalise.
From a longer-term perspective, we believe India is better placed today to absorb external shocks than it was in prior cycles. Over the past decade-plus, a series of reforms and institutional strengthening across sectors has helped build a more durable foundation.
So, while near-term market moves can be sharp and sentiment-driven, we don't see such episodes, by themselves, changing the long-term trajectory of the Indian economy or the structural trend in equities.
Q2. After a prolonged phase of FII outflows, February witnessed the highest foreign inflows into Indian equities in nearly 17 months. Do you believe this signals a more sustained improvement in global investor sentiment toward India, or could such inflows remain intermittent in the near term?
Ans:2 Foreign investor positioning in India is typically driven by a combination of India-specific fundamentals and the broader global/emerging market opportunity set.
A key reason India saw meaningful outflows over the past year was the global concentration of returns in the AI theme. Markets such as US, Taiwan, Korea and parts of China have a larger share of direct AI beneficiaries, whereas India has fewer "pure-play" AI winners in the listed space. Currency dynamics also mattered. At the same time, India's earnings growth expectations softened versus its long-term trend.
Looking ahead, consensus expects earnings to re-accelerate to mid-teens growth in FY27E from single-digit growth over past two years. Valuations have also become more reasonable with India's valuation premium to MSCI EM moderating closer to long-term averages. Finally, FII positioning is light with India's active weight relative to the EM index near multi-decade lows. All these can create durable improvement in positioning with strong incremental inflows.
Net-net, while February's strong inflows are encouraging, we'd expect the near-term pattern to remain somewhat stop-start, with flows reacting to global risk appetite, geopolitics, US dollar, and relative performance across markets. We expect FII positioning to improve over the medium term.
Q3. The IT sector has witnessed a sharp correction recently, with the index declining by nearly 20%, partly driven by concerns around evolving technologies such as artificial intelligence and their potential impact on traditional IT services. From a long-term perspective, how do you evaluate these developments and the future growth prospects of the Indian IT sector?
Ans:3 The recent correction in Indian IT has been sharp with >20% drawdown during YTD2026.
From a top-down lens, the sector is facing genuine headwinds as AI systems become more capable moving from "assistive" tools to autonomous agents. This uncertainty is likely to stay elevated over the next few quarters as technology and adoption curve evolves quickly. However, the bottom-up picture is more balanced. Many IT companies delivered in-line to better-than-expected 3QFY26 results, with healthy deal wins and management commentary that remains broadly constructive.
Over the medium term, we see AI as both a disruptor and a growth driver. On one hand, it can compress some legacy work through automation and productivity gains. On the other, it can expand the addressable market as enterprises push into "agentification" (embedding AI agents across workflows). Though valuations have reset closer to long-term multiples, in the near term, continued developments in Agentic AI could keep sentiment and valuations subdued.
Ultimately, the key long-term question is whether AI meaningfully lowers the sector's terminal growth rate and if so, by how much. The answer to that, relative to the valuation investors are paying today, will determine whether this correction proves to be a temporary derating or a more lasting reset.
Q4. The recent regulatory changes introduced by SEBI allow equity schemes to allocate a limited portion of assets to commodities such as gold and silver through ETFs. How do you view this flexibility from a portfolio construction perspective, and do you see it meaningfully influencing diversification within equity-oriented funds?
Ans:4 SEBI's recent move to allow equity mutual funds greater flexibility permitting allocation of up to 35% to instruments such as gold and silver (via ETFs), as well as InvITs and debt broadly expands the options available to fund managers. This gives managers additional levers to manage liquidity, drawdowns and diversification, particularly during periods when equity risk premium increases.
That said, in our view, the most important principle is that an equity scheme should remain true to its stated mandate and investor expectations. For example, a small-cap fund is typically chosen to participate in India's growth story through smaller companies that can scale over time. If such a fund were to meaningfully increase exposure to gold or debt, it could dilute the very equity participation investors signed up for.
As a fund house, we maintain cash primarily to meet redemption needs and don't take large active cash calls. Similarly, while a small allocation to gold/silver ETFs or other permitted instruments can provide incremental diversification, it's unlikely in our funds to become a meaningful portion of equity portfolios.
Overall, the change is a positive, but whether it materially changes diversification within equity schemes will depend on each fund's philosophy.
Q5. Markets periodically witness events that can trigger short-term volatility. Given that such events are a recurring feature of markets, how should investors approach these phases so that they view them as opportunities rather than panic and remain focused on long-term wealth building?
Ans:5 Over the past four decades, two things have remained remarkably constant - Equities have been volatile in the short term, and they've tended to outperform most other asset classes over the long term. In the short run, every volatile event feels different and permanent, however, most have been temporary within a longer compounding journey.
The most practical way for investors to turn volatility into opportunity is to shift towards a process-oriented approach to equity investing rather than reacting to daily news flow. Use systematic investing through SIPs/ STPs and staggered deployment to help manage volatility. During such volatile periods, strong businesses with resilient balance sheets and cash flows tend to recover faster and compound better. Investors should maintain adequate liquidity so that short-term market moves don't result in forced selling and become permanent losses.
Empirical evidence suggests that some of the best long-term returns are earned by investing when sentiment is weakest. To conclude, volatility creates uncomfortable moments, but it also creates better entry points for long-term wealth building.
Q6. It is often observed that investors gravitate toward schemes that have delivered strong recent performance and may even switch funds based on short-term rankings. In your view, how should investors approach fund selection and avoid the common behavioural trap of chasing past performance?
Ans:6 Styles, sectors and market caps rotate as macro conditions change. So what worked for a fund in one phase may not work in the next. A fund that tops the charts in a momentum-led rally may lag when leadership shifts to value, quality, or defensives. If investors focus on only one element (typically recent returns) and switch schemes based on short-term rankings, the outcome is often sub-optimal.
A better approach is to evaluate whether a fund's investment philosophy and process fits the investor's needs. Practically, investors should look at:
Consistency across market cycles, rather than just short-term returns
Risk-adjusted performance and not only absolute performance
Portfolio construction discipline (diversification, concentration, turnover)
Fund house and portfolio manager process (stability in investment approach)
Costs and tax efficiency
In short, investors are better served by choosing funds with a clear, well-executed process aligned to their needs and then giving that process time to work rather than switching based on recent rankings.
Source: Internal Research
Mutual fund investments are subject to market risks, read all scheme-related documents carefully.
