Future wealth will be driven by active stock-picking, identifying newer growth segments currently outside the major indices and holding them through their growth phase, said Viraj Gandhi, chief executive officer (CEO) of Samco Mutual Fund.

“In this volatile environment, shifting from a passive mindset to an active, selective strategy is the only way to navigate the new investment horizon.”

Even as current market conditions offer a strong buying opportunity, he believes the old passive-playbook approach of sticking to large-cap indices is unlikely to work.

Edited excerpts:

What’s your take on this market correction? Is it the start of a prolonged risk-off phase, or just a temporary dip likely to recover soon?

The outlook depends on key leading indicators. If crude stays elevated for the next three to twelve months, fuelling global inflation, this could be the start of a deeper fall. But if crude cools and recession fears fade, this correction may turn out to be a strong entry opportunity. Rather than taking a fixed view now, investors should stay nimble and closely track indicators like US bond yields—rising rates would signal further downside, while a short-term, event-driven spike could present a buying opportunity. The next few weeks will be crucial in shaping this view.

How do you view the current market landscape, and what approach should investors take to navigate the ongoing volatility?

Volatility is the new normal; it is no longer a short-term phase but a permanent part of the investment journey. What is more important to understand is—how do you navigate it? To navigate this, one must recognize that rapid environmental shifts create a ‘new normal’ in which past behaviours and strategies must be updated to remain effective. If you can adapt to these shifts and understand how the world is changing, volatility ceases to be a hurdle and instead becomes your best friend in identifying the next set of winners.

What are the factors to watch out for, for investors, given the current scenario?

Investors should approach markets with a medium- to long-term view, as timing such phases is difficult. It’s better to rely on fund managers' expertise and stay patient, asking the right questions at the right time. This isn’t the time to exit the market; it's time to stay engaged.

While many market experts see this as a good time to buy Indian equities, what’s your take?

India has underperformed significantly over the last 24 months due to high valuations and missing out on global themes like artificial intelligence (AI), semiconductors, and electronics. While current market conditions offer a strong buying opportunity, the old passive playbook of sticking to large-cap indices is unlikely to work. Future wealth will be driven by active stock-picking, identifying newer growth segments currently outside the major indices and holding them through their growth phase.

Two questions: with the current uncertainty, do you think passive investing will regain favour? And what’s your view on small- and mid-cap funds—are they a good buy after the recent correction?

Passive investing will clearly gain momentum and market share because active styles have underperformed; however, fund managers must move beyond a static ‘passive thought process’ and adapt their approach to new situations. Nobody chooses the passive route when active managers outperform, so this shift in the overall pie is inevitable. Regarding mid- and small-caps, I’ll put my neck out and say it is the right time for a five-year horizon. While some pockets remain expensive, the recent correction has made specific areas highly attractive.

As the pioneer of India's first actively managed momentum fund in 2023, how do you see momentum as a strategy for retail investors today?

Momentum works best in a risk-on market; when everything is rising, it tends to generate the highest alpha, according to back-tested data. However, our active momentum approach also aims to perform in falling markets by protecting capital, which helped us outperform some peers recently as we weren’t fully equity invested. Momentum is a high-risk, high-return strategy, so beginners should start with a small allocation and stay invested for 5-10 years. Historically, indices like the Nifty 500 Momentum 50 have shown a very high probability of beating the benchmark over such periods. In the short term, however, momentum can underperform due to its high volatility and beta.

So, for an investor aiming at a longer-term horizon, say two years or more, would momentum be a suitable strategy?

Not two years—a minimum of three to five years is needed; above five years is very good. In fact, for anything under three years, equity markets or mutual funds are not the right place to be. Markets are moving faster now, with more frequent events, and shorter cycles mean it takes longer for any investment style to deliver the returns you expect.

Often, as momentum gains traction, investments can get crowded near market peaks, so how do fund managers actively manage that?

This isn’t just true about momentum; it’s true for every style, as performance-chasing is common. We’ve built a ‘peak momentum’ approach: we tend to outperform in rising, risk-on markets, but when that risk peaks, our indicators signal it’s time to exit the ‘party’ before it fades.

In sharp reversals and a risk-off market, momentum strategies can get hit and underperform, right?

Most of my schemes are momentum-based right now, and I’m happy to share that many have significantly outperformed this falling market, ranking in the top quartile over the last three volatile months. This is thanks to our built-in hedging: we protect capital when momentum exits the market and re-enter when it returns.

Can you elaborate on how you hedge it? What factors do you look at—do you churn the portfolio, or how exactly does it work?

We monitor the momentum of companies and indices very closely, both daily and hourly. When several indicators signal the market is under stress, we gradually reduce equity exposure rather than make sudden changes. This phased approach helps protect capital. As the market stabilizes and distress signals fade, we slowly increase our equity exposure again. This systematic process is how we manage risk while staying positioned to benefit when momentum returns.

What's the most misunderstood trend in the mutual fund industry right now?

It’s a deep question. What many miss is that the last decade’s playbook won’t work for the next one. The Indian market landscape has changed, and wealth creation will look very different. Sticking to past winners or old strategies can lead to underperformance, as seen post-covid, when earlier leaders lagged as new opportunities emerged. We’re using a momentum-based approach to identify the next winners. We’re not tied to any fixed playbook; we stay nimble and adapt to market conditions.

Future wealth will be driven by active stock-picking, identifying newer growth segments currently outside the major indices and holding them through their growth phase, said Viraj Gandhi, chief executive officer (CEO) of Samco Mutual Fund.

“In this volatile environment, shifting from a passive mindset to an active, selective strategy is the only way to navigate the new investment horizon.”

Even as current market conditions offer a strong buying opportunity, he believes the old passive-playbook approach of sticking to large-cap indices is unlikely to work.

Edited excerpts:

What’s your take on this market correction? Is it the start of a prolonged risk-off phase, or just a temporary dip likely to recover soon?

The outlook depends on key leading indicators. If crude stays elevated for the next three to twelve months, fuelling global inflation, this could be the start of a deeper fall. But if crude cools and recession fears fade, this correction may turn out to be a strong entry opportunity. Rather than taking a fixed view now, investors should stay nimble and closely track indicators like US bond yields—rising rates would signal further downside, while a short-term, event-driven spike could present a buying opportunity. The next few weeks will be crucial in shaping this view.

How do you view the current market landscape, and what approach should investors take to navigate the ongoing volatility?

Volatility is the new normal; it is no longer a short-term phase but a permanent part of the investment journey. What is more important to understand is—how do you navigate it? To navigate this, one must recognize that rapid environmental shifts create a ‘new normal’ in which past behaviours and strategies must be updated to remain effective. If you can adapt to these shifts and understand how the world is changing, volatility ceases to be a hurdle and instead becomes your best friend in identifying the next set of winners.

What are the factors to watch out for, for investors, given the current scenario?

Investors should approach markets with a medium- to long-term view, as timing such phases is difficult. It’s better to rely on fund managers' expertise and stay patient, asking the right questions at the right time. This isn’t the time to exit the market; it's time to stay engaged.

While many market experts see this as a good time to buy Indian equities, what’s your take?

India has underperformed significantly over the last 24 months due to high valuations and missing out on global themes like artificial intelligence (AI), semiconductors, and electronics. While current market conditions offer a strong buying opportunity, the old passive playbook of sticking to large-cap indices is unlikely to work. Future wealth will be driven by active stock-picking, identifying newer growth segments currently outside the major indices and holding them through their growth phase.

Two questions: with the current uncertainty, do you think passive investing will regain favour? And what’s your view on small- and mid-cap funds—are they a good buy after the recent correction?

Passive investing will clearly gain momentum and market share because active styles have underperformed; however, fund managers must move beyond a static ‘passive thought process’ and adapt their approach to new situations. Nobody chooses the passive route when active managers outperform, so this shift in the overall pie is inevitable. Regarding mid- and small-caps, I’ll put my neck out and say it is the right time for a five-year horizon. While some pockets remain expensive, the recent correction has made specific areas highly attractive.

As the pioneer of India's first actively managed momentum fund in 2023, how do you see momentum as a strategy for retail investors today?

Momentum works best in a risk-on market; when everything is rising, it tends to generate the highest alpha, according to back-tested data. However, our active momentum approach also aims to perform in falling markets by protecting capital, which helped us outperform some peers recently as we weren’t fully equity invested. Momentum is a high-risk, high-return strategy, so beginners should start with a small allocation and stay invested for 5-10 years. Historically, indices like the Nifty 500 Momentum 50 have shown a very high probability of beating the benchmark over such periods. In the short term, however, momentum can underperform due to its high volatility and beta.

So, for an investor aiming at a longer-term horizon, say two years or more, would momentum be a suitable strategy?

Not two years—a minimum of three to five years is needed; above five years is very good. In fact, for anything under three years, equity markets or mutual funds are not the right place to be. Markets are moving faster now, with more frequent events, and shorter cycles mean it takes longer for any investment style to deliver the returns you expect.

Often, as momentum gains traction, investments can get crowded near market peaks, so how do fund managers actively manage that?

This isn’t just true about momentum; it’s true for every style, as performance-chasing is common. We’ve built a ‘peak momentum’ approach: we tend to outperform in rising, risk-on markets, but when that risk peaks, our indicators signal it’s time to exit the ‘party’ before it fades.

In sharp reversals and a risk-off market, momentum strategies can get hit and underperform, right?

Most of my schemes are momentum-based right now, and I’m happy to share that many have significantly outperformed this falling market, ranking in the top quartile over the last three volatile months. This is thanks to our built-in hedging: we protect capital when momentum exits the market and re-enter when it returns.

Can you elaborate on how you hedge it? What factors do you look at—do you churn the portfolio, or how exactly does it work?

We monitor the momentum of companies and indices very closely, both daily and hourly. When several indicators signal the market is under stress, we gradually reduce equity exposure rather than make sudden changes. This phased approach helps protect capital. As the market stabilizes and distress signals fade, we slowly increase our equity exposure again. This systematic process is how we manage risk while staying positioned to benefit when momentum returns.

What's the most misunderstood trend in the mutual fund industry right now?

It’s a deep question. What many miss is that the last decade’s playbook won’t work for the next one. The Indian market landscape has changed, and wealth creation will look very different. Sticking to past winners or old strategies can lead to underperformance, as seen post-covid, when earlier leaders lagged as new opportunities emerged. We’re using a momentum-based approach to identify the next winners. We’re not tied to any fixed playbook; we stay nimble and adapt to market conditions.