India’s stock market may have little reason to break out of its range in the near term, with valuations needing to cool, the global artificial intelligence (AI) trade losing some momentum and foreign investors eventually returning, according to Anthony Heredia, managing director and chief executive officer of Mahindra Manulife Mutual Fund.
In an interview with Mint, Heredia, who oversees assets worth ₹38,650 crore, said investor sentiment remains balanced rather than euphoric or pessimistic. The market has been “strictly range-bound” for the past two years, he said, and could remain so for another six to nine months.
“It’s a normal structural consolidation phase, not a red flag,” Heredia said.
Edited excerpts:
How would you characterize the current market environment and investor sentiment?
Sentiment is stable right now—neither euphoric nor pessimistic. We’ve been in a strictly range-bound market for the past two years. That’s why your trailing one-year returns can look positive or negative depending entirely on the day you check your portfolio.
We expect this sideways movement to persist for another six to nine months. It’s a normal structural consolidation phase, not a red flag.
If the market is set to remain flat for another six to nine months, why are domestic institutional investors (DIIs) still buying aggressively?
DIIs are strategic, long-term allocators. Thanks to steady domestic SIP inflows, they are operating with a clear three-to-five-year horizon. For retail investors who joined the market in the last four or five years, a flat market feels incredibly unsettling because they’re used to uninterrupted gains. But older and more experienced investors—those with 20 or 30 years in equities—know the reality: range-bound phases are historically the best times to accumulate, not panic.
What should investors do in a flat, range-bound market?
Stay patient and diversify. A sideways market is the ultimate stress test for your portfolio, and it highlights the absolute necessity of true asset allocation. If you’re relying solely on domestic equities right now, you’ll feel the drag.
You need to look a little beyond—consider international equities and, more importantly, consider non-equity products like multi-asset funds and hybrid funds to smooth out the ride when Indian stocks pause.
What triggers will break the market out of this range?
A sustained breakout will require three converging catalysts: cheaper valuations—as corporate earnings grow while the market stays flat, P/E multiples will naturally cool down; a slowing AI trade—we need to see global capital rotate out of overcrowded foreign tech plays; and the return of inflows from foreign portfolio investors (FPIs)—once local valuations become attractive again, foreign investors will buy back into India.
If domestic funds see long-term value, why are FPIs taking the opposite side and pulling back?
Global investors view countries opportunistically. Just as a domestic manager toggles between mid-caps and large-caps, a global fund rotates across regions and themes.
Over the last 12 to 18 months, global capital has aggressively chased the AI transformation narrative. Since Indian listed companies aren’t direct, short-term beneficiaries of the profit pools currently available within the AI ecosystem, global money has simply moved to markets where that trade is actively playing out.
As talk grows about the AI trade losing steam, shouldn’t that money start flowing back into India?
Eventually, yes. The extreme exuberance around the AI ecosystem will inevitably normalize as valuations and earnings expectations adjust over the next three-to-five-year cycle. When that dust settles, global investors will reassess.
The current narrative—that India lacks immediate triggers—will flip, and FPI flows will return to compound alongside the consistent DII support we already have.
What risks do you think investors may be underestimating right now—currency volatility, geopolitics or tariffs?
Honestly, I don’t think the market is underestimating those factors. The fact that we are range-bound tells me a lot of this uncertainty is already priced in. If there’s one blind spot to watch, it’s global liquidity.
For the last 15 years, risk assets have floated on a sea of central bank liquidity. With global bond yields moving higher, we need to watch if that taps out. If the liquidity regime changes, it won’t be great for risk assets, equities included. At the end of the day, investing is about probabilities and how they are priced, not certainties.
What is the traction for fixed-income investments?
Domestically, traction is limited. Without a significant tax advantage over traditional deposits, retail investors aren’t overly excited. Multi-asset funds are actually a much more tax-efficient route to get that fixed-income exposure.
Interestingly enough, foreign investors are much more bullish on Indian bonds right now than domestic players. FPI flows into fixed income have been robust, while local participation remains flat.
Why are global investors turning positive on Indian bonds?
It comes down to three factors: diversity—Indian bonds offer a distinct, diverse opportunity set within the Asian landscape; index inclusion—India’s inclusion in major EM bond indices has turned it from an outlier trade into a mandatory benchmark allocation; and currency normalization—much of the anticipated rupee depreciation has already played out.
When you put that together, domestic rupee bonds are actually looking more attractive right now than dollar-denominated bonds from Indian or even Asian issuers, for that matter.
Why do you prefer multi-cap funds over flexi-cap funds?
In theory, flexi-caps offer agility, but in practice, they remain heavily skewed toward large-caps. The data speaks for itself: multi-cap funds have consistently outperformed flexi-cap funds by about 1.5 to 2 percentage points annualized across one-, two-, three- and five-year horizons.
The takeaway is simple—you’re better off forcing true, disciplined diversification across market caps rather than paying a manager to guess which segment will lead next.
Coming to SIFs, which are a budding category, has SIF distributor coverage been a bottleneck because of low exam pass rates?
Six months ago, yes, distribution was a concern. Today, the landscape has shifted dramatically. The new dual exam combining mutual funds and SIFs (Specialised Investment Fund) has streamlined the certification process. Because client demand is surging, we expect the number of certified distributors to grow three to four times in the next few months. That initial bottleneck is effectively resolved.
Will investors shift away from mutual funds into SIFs?
It’s not a substitution; it’s an allocation expansion. Investors aren’t going to liquidate their mutual funds to buy SIFs. Instead, they’ll simply bolt SIFs onto their existing portfolios—perhaps alongside their MF allocations—using fresh capital rather than redeeming old investments.
Is finding talent a major challenge for the SIF category?
The talent squeeze is highly specific: it’s on the investment-management side, not the back office. We have excellent mutual fund infrastructure handling sales, risk, compliance and operations. Folks are already used to dealing with complex derivative trading.
The real challenge is finding experienced portfolio managers who can successfully execute advanced long-short and derivative strategies. They are much rarer than traditional long-only managers, and that talent gap is only going to intensify as the SIF space crowds with new product launches and players.