Expect FIIs to influence market returns in the near term: Harish Krishnan

Harish Krishnan, co-chief investment officer and head of equity at Aditya Birla Sun Life AMC talks about the outlook for flows into EMs, reshaping the portfolio of their firm and more

Hopes of a trade deal between the US and other countries, along with easing geopolitical tensions, have lifted market sentiment recently. Harish Krishnan, co-chief investment officer and head of equity at Aditya Birla Sun Life Asset Management Company, tells Puneet Wadhwa in an email interview that they have increased exposure to financials, consumption, and resources while trimming positions in capital goods and real estate. Edited excerpts:

 

What is the next set of triggers for the markets? 

Market participants are likely to focus on the contours of trade deals and where the dollar index settles after its 10 per cent decline over the past six months, alongside new policy measures to stimulate consumption and corporate earnings. Given the strong upmove in global markets over the past three months, any abrupt policy shifts around trade could rattle sentiment, which has improved in recent months.

 

Could markets now enter a phase of consolidation after the rally from April lows?

  Markets saw a steep fall followed by a recovery in the first half of calendar 2025. Earnings growth for India Inc has been sluggish over the past year. However, we expect a recovery in the October–December quarter, helped by rate cuts from the Reserve Bank of India, targeted tax relief from the government, and the likely culmination of trade negotiations in the coming months. While some market consolidation is possible in the near term, we remain enthused about Indian equities over the medium to long run.

 

What’s your outlook for flows into emerging markets (EMs), especially India?

  Where the dollar index stabilises will shape the direction of flows into EMs. The US administration appears intent on weakening the dollar to regain competitiveness on trade, even if it steps back from leading capital flows. If that comes through, EMs, which have been largely on the receiving end over the past decade, could see renewed inflows.

 

India, being a major part of the EM basket, stands to benefit from any such reallocation. Its share of global market capitalisation is a shade under 4 per cent, roughly in line with its share of global gross domestic product (GDP). Over the next decade, India’s share of world GDP is expected to double, and market capitalisation could follow a similar trajectory. 

 

How have you reshaped your portfolio over the past six to eight months? 

We’ve increased our exposure to financials, consumption, and resources, while cutting back on capital goods and real estate. We’ve generally stayed fully invested over time, avoiding excessive cash calls.

 

In our asset allocation products like the Aditya Birla Sun Life Balanced Advantage Fund, net equity exposure was 54 per cent in September 2024, pruned down to 38 per cent in early October. We then increased equity allocation to 78 per cent by mid-June and ended last month at around 70 per cent, after booking profits.

 

Foreign institutional investors (FIIs), domestic institutional investors or retail investors — who’s likely to have a tighter grip on the markets over the next year?

  Currently, all three groups are buyers, while promoters and private equity are the major sellers. But at the margin, FIIs tend to be more sensitive to valuations since they have other geographies to invest in. So, if valuations rise meaningfully from here, we expect FIIs to influence market returns in the near term.

 

Active versus passive — which approach should investors consider over the next 12–18 months? 

Equity investing is a long-term game, and the choice between active and passive shouldn’t hinge on a 12–18-month horizon. Passive investing brings a process-based approach, while active investing attempts to bring in a variant perception to deviate from the consensus.

 

In mature markets like the US, the percentage of companies within, say, the S&P 500 that generate 50 per cent moves from their yearly lows typically tends to oscillate between 20 per cent and 30 per cent, whereas in India, 40–50 per cent of the top 500 companies generate 50 per cent or more moves from their yearly lows. Given this, we believe there is scope for active management in India from a medium-term perspective.