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Koel Ghosh, head–South Asia, S&P Dow Jones Indices says market participants in India have signalled interest in factor-based indices, by moving away from plain vanilla market beta strategies and investing in multi-asset or thematic strategies such as environmental social and governance (ESG), metaverse and crypto. In an interview with Mint, she added that diversification will never go out of style. Edited excerpts:

What new trends are you witnessing in terms of themes or geographies?

The way markets have reacted in the post-pandemic world has made market participants realize that disruption leads to innovation. Market participants are looking at the next disruptive aspect that needs resolution. Market participants are exploring metaverse, crypto and another theme, which has there been for a long, but now has been looked at more seriously, is sustainability and ESG. The sustainability theme is expected to see exponential catch-up in India.

Do you think regulations around ESG and disclosures by companies are robust enough?

The regulations, for example, in India the latest Business responsibility and sustainability reporting (BRSR) regulations include 1,000 companies, which will extend to another 1,000 companies. Some companies are adopting these guidelines proactively. A lot of these companies also have sustainability officers. With this kind of focus, we should start seeing quality information coming through. From an index perspective, we offer the BSE 100 ESG index which covers 100 companies. More information from companies will help the overall market as a whole and that will help us to develop more sustainability-focused indices.

What more needs to be done on the ESG regulation front?

Regulation will keep changing and evolving. What is important at this point is educating the investment community on the importance of sustainable investment.

As per the latest SPIVA report, Indian active funds saw a big rebound in their performance in 2021. What were the reasons behind this? (read more)

The markets keep on changing and it was a very volatile market last year. Moreover, sometimes there is an aspect of dispersion, which is the spread of returns within an index. When there is a high dispersion among the constituents, the indices tend to move a lot more compared to when there is no dispersion. In the years where there has been low dispersion, we have seen higher numbers of managers underperforming. So, it depends on how markets are placed and how dynamic the markets are. If you see historically, large-cap fund managers have struggled to outperform passive strategies. If there are inefficiencies in the market, then that allow actives a slight edge over passives.

How can index investing help investors during volatile markets?

The first positive aspect is consistency. An index is aligned with its published methodology, which is transparent and publicly available to market participants. The second aspect is low cost because you don’t have fund manager costs or research costs. Also, if you look at the SPIVA report, in certain segments, index investing can beat active fund returns. Further, diversification to a large extent can also help market participants.

Is there any interest in crypto or metaverse-based products in India?

There is definitely interest, however, whether that will culminate into a product for the market is yet to be seen. However, the demand for new products is growing. So, we are looking at electric vehicles, drone technology, and smart transportation.

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