Mr. Pradeep Kesavan

Chief Investment Officer - Equity, SBI Mutual Fund.

Pradeep is the Equity Strategist with SBI AMC and has over 20 years’ experience panning Corporate Finance, Corporate Strategy, Investment analysis, and research. He has worked extensively in public as well private markets across areas like equity strategy, private equity due diligence, M&A and Corporate strategy, merger integration as well as analysis of corporate fundamentals and strategies using proprietary frameworks. As the equity strategist he tracks and analyses key macro as well as micro factors that affect capital markets using a combination of quantitative and fundamental techniques to provide sector allocation calls. Pradeep joined SBI AMC in Jul’21. Prior to SBI AMC, he has spent 9 years with Morgan Stanley, 4 years in Accenture Strategy Consulting and 4 years with Elara Capital as Equity Strategist. He holds a Bachelor’s degree in Commerce, Masters in Business Administration and is a CFA Charter holder.

Please note we have published the answers as it is received from the Fund Manager of SBI.

Q1. Despite sustained FII selling in recent months, domestic institutional flows and SIP contributions have continued to absorb the pressure. How significant is this structural shift towards domestic ownership of Indian equities, and does it fundamentally change how investors should think about market resilience going forward?

Ans: FII’s ownership in Indian Equities has seen a sharp decline over the last 5 years. From ~20% in 2020, its now down to ~16%. Correspondingly, domestic institutional share has increased from ~16% to ~19.5% currently. However, there is some evidence to suggest that while domestic participation makes markets more stable and resilient, FIIs tend to contribute more towards market direction (both upside and downside). Therefore, from a retail investor perspective, they could expect a more stable market profile as domestic investors’ share in the market increases.

Q2. Even as markets have remained in a prolonged consolidation phase, corporate earnings have continued to compound- meaning valuations have quietly moderated from their peaks. Does this reset improve the risk-reward for long-term investors, and what triggers could drive the next sustained up-move in Indian equities?

Ans: Yes, from the peak valuation levels seen in 2024/25 levels, the market valuations (especially of largecaps) have corrected meaningfully and at current levels are trading close to long term averages. But having said that FY26 earnings growth came in at single digit on the back of a low base of FY25 (which was ~1% growth). So overall earnings delivery hasn’t been strong over the last two years. Looking ahead, there is a strong expectations for earnings recovery and we believe conditions look reasonable for a strong FY27. Receding macro (crude and currency) risks and improving geopolitics (US-Iran war, to lesser extent Russia-Ukraine) will be key catalysts.

Q3. After two years of sideways markets, many investors are seeing modest or even single-digit SIP returns and questioning whether SIPs "work." How should investors evaluate SIP performance during such phases, and why might continuing- or even stepping up- SIPs in flat markets matter most for long-term wealth building?

Ans: It is true that markets have been flat for the last couple of years now. This is par for the course in equity markets, where return expectations can’t be linear. Even at current levels, 3 year CAGRs look healthy. Therefore, retail investors should continue building their portfolios via SIPs. Investors who had continued their SIP discipline would be now sitting on a strong base of investments made at same level of NAVs for 2 years. When the markets restart their upward journey, the strong base of 2 years’ worth of investments will stand them in good stead.

Q4. Investors often evaluate active funds based on historical returns, but metrics such as active share can provide insight into how differentiated a portfolio is from its benchmark. How should investors interpret active share, and what role should it play when selecting active equity funds?

Ans: Investors in actively managed mutual funds do so with an expectation to outperform the benchmark indices. Therefore, there is an implicit expectation that the fund manager actively positions his/her portfolio in a manner to stand apart from the index. Active share is a measure of degree to which a portfolio stands apart from its benchmark. A higher active share therefore is an indication that the portfolio is more actively managed in the sense of it being materially different from the benchmark. However, there are nuances- one, standing apart from benchmark by itself is no guarantee that the returns will be “better” than the benchmark. It only ensures that the returns will be “different” from the benchmark. The onus of outperformance boils down to stock selection, even in portfolios with high active share. Second – there are times in market when a portfolio manager might want to reduce the benchmark risk in portfolio and reduce active share. In such cases the lower active share number is a deliberate call that the FM is taking. Therefore, “higher the better” is not always true when it comes to active share.

Q5. The recent concerns surrounding Rajesh Exports have highlighted how governance and disclosure-related issues can emerge even in well-known listed companies. What are some of the key warning signs that you look for when assessing management quality and financial reporting standards?

Ans: At SBI Mutual Fund, we have a robust forensic accounting framework that tracks multiple metrics over a long period of time. This framework also benchmarks these metrics vs other listed companies. So at any given point in time, we have a view on the accounting quality of any listed security and we know about the key red flags, if any. This is a broad and deep subject and a short answer will not do justice.

Q6. With markets volatile and range-bound, SIF strategies- particularly long-short and hedged approaches- are facing their first real test in Indian conditions. How have these strategies navigated the current phase, and does a sideways market actually make the strongest case for their inclusion in portfolios?

Ans: SIFs have been relatively new investment vehicles, and we believe the performance of such schemes needs to be assessed once we have a little longer time horizon of performance track record. Having said that, the long-short and hedged strategies are designed to generate positive returns in all market conditions and therefore they make a case for inclusion in investor’s portfolio when the markets trend sideways or downwards as well.

Source: Internal Research
Mutual fund investments are subject to market risks, read all scheme-related documents carefully.