India's macroeconomic fundamentals remain strong, and foreign investors may turn more constructive on equities, providing an additional tailwind to markets. Umeshkumar Mehta, CIO of
SAMCO Mutual Fund, in an email interview with Abhinav Ranjan, said that a review and expansion of the overseas investment limit by the regulators would allow retail investors to access global themes that are difficult to participate in through domestic markets. Edited excerpts below:
What factors will drive the markets in H2CY26?
The key drivers for markets in the second half of CY2026 are likely to be corporate earnings and easing cost pressures. On the earnings front, profitability should improve as raw material costs continue to soften and the impact of geopolitical disruptions on supply chains gradually recedes. Lower input costs should support margin expansion across several sectors, while resilient domestic demand and continued investment activity are expected to aid earnings growth.
Another important factor to watch will be FPI flows. With India's macroeconomic fundamentals remaining strong, there is a possibility of foreign investors turning constructive on Indian equities, which could provide an additional tailwind to the markets.
DIIs have proved to be a pillar of strength for the Indian markets. Is this structural shift in India's capital markets here to stay? Will FPIs become irrelevant in the next 3 to 5 years?
The rise of DIIs is one of the most significant structural changes in India's capital markets. In December 2024, DIIs ownership of Indian equities surpassed that of FPIs. The steady SIP inflows have made market liquidity more resilient during periods of global uncertainty.
However, it would be incorrect to say that FPIs will become irrelevant in the next 5 years. FPIs play a critical role in price discovery, market liquidity, and connecting Indian markets with global pools of capital. Their participation also reflects global investors’ confidence in India's story. What is changing is the balance of influence. Earlier, FPI flows often dictated market direction; today, strong domestic inflows have helped cushion the impact of FPI selling.
Which sectors do you believe could produce the next market multi-baggers, and where do you remain cautious?
From a long-term perspective, one of the most compelling opportunities lies in the aerospace and defence ecosystem. While defence has already attracted investor attention, the next wave of value creation could come from companies supplying components to global aerospace and defence OEMs. On the other hand, we remain relatively cautious on the IT sector. The rapid advancement of AI has led to increased uncertainties for traditional IT companies. The sector's ability to adapt will determine the long-term winners, but in the near term, this transition could create further pressure.
With passive investing gaining traction, what challenges are active fund managers facing, or likely to face, over the next few years?
Indian markets still offer significant opportunities for active fund managers, with ample scope for stock selection and alpha generation. Delivering consistent outperformance is going to become more challenging over the coming years. As markets mature, information becomes more widely available, and competition intensifies, generating excess returns over the benchmarks will require greater research depth, stronger risk management, and disciplined portfolio construction. Another important trend is the growing use of quantitative and AI-driven models in investment management. While these models are improving market efficiency, they also provide active managers with powerful tools to enhance research, identify opportunities, and manage risk more effectively. The differentiator will increasingly be how well fund managers combine data-driven models with fundamental insights and make investment judgments.
Are you feeling the impact of cost pressures amid increasing competition?
Our key differentiator is that we are a completely model-driven asset manager. Every aspect of our investment process is systematic and rules-based. We use momentum as a factor and do not override our models based on discretionary market views. Our philosophy is backed by long-term evidence. For instance, over the long term, the MSCI Momentum Index has grown by nearly 36 times, compared with around 13.5 times for the MSCI World Index, demonstrating the power of systematically capturing market trends over extended periods.
On the cost front, competition has undoubtedly increased pressure across the industry. However, our focus remains on delivering a differentiated investment proposition through a disciplined, research-backed process rather than competing solely on price.
Which areas do you believe need greater regulatory flexibility to support the industry while ensuring investor protection?
One area where greater regulatory flexibility could create meaningful value for investors is global investing. Indian markets have underperformed several emerging markets because many AI-led technology companies have limited representation in the domestic market. This highlights the importance of giving investors access to international investment opportunities that complement, rather than replace, their India allocations.
Currently, fresh investments into many international mutual funds and feeder funds remain restricted because the industry's overseas investment limit of $7 billion has been fully utilised. A review and expansion of the overseas investment limit would enable Indian retail investors to access global themes that are difficult to participate in through domestic markets, such as artificial intelligence, advanced semiconductors, and biotechnology.
Has the retail investor's approach to the markets changed in the last few months amid the West Asia crisis? What major shifts have you observed?
The behaviour of retail investors has become more mature. Rather than reacting emotionally to short-term events, retail investors are focused on long-term wealth creation. The biggest evidence of this resilience is the continued SIP flows. This highlights that investors are continuing with their disciplined investment plans. Another shift is that investors today are far more informed and diversified. They are increasingly allocating across diversified strategies based on their financial goals. Overall, retail investors have evolved from trying to time the market to trusting a disciplined, long-term investment approach.
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 "Overseas investment limit for MFs needs a fresh look: Umeshkumar Mehta")
