Radhakrishnan Chonat: Ladies and gentlemen, welcome to another episode of Alpha Street podcast fund manager series. Today we are joined by Deepak Gupta, who brings with him more than two decades of experience in equity research and fund management. He’s the head of research and senior fund manager for equities at JM Financial Asset Management Limited. Over the course of his career, he has worked across institutions like SBI Pension Funds, Reliance Nippon Life Insurance, and Axis Asset Managers before joining his current role. Deepak has been closely associated with several equity strategies, including flexi-cap, large-cap, mid-cap, focus, value, small-cap, and ELSS, giving him a unique perspective across market cap styles and investment cycles. He is a Chartered Accountant and holds a Master’s degree in commerce from Mumbai University. Deepak, great to have you with us on Alpha Street.
Deepak Gupta: Thank you so much for having us. Really appreciate the opportunity.
Radhakrishnan Chonat: Deepak, let’s start with your career journey and your evolution so far. You have spent close to 20 years in equity research across insurance, pension funds, and mutual funds. Having seen the Indian market evolve through multiple cycles, what, according to you, has fundamentally changed in the way Indian investors and institutions approach equities today?
Deepak Gupta: In my view, in the last two decades, what has changed from an Indian market perspective is that investors have started having more patience compared to maybe a decade back. The retail investors, in particular, used to be extremely impatient and were very worried about losses; they didn’t have the “stomach” to bear losses. As we know, equities give inflation-beating returns and hence require the stomach to bear losses as and when they happen. You have to stay in equities for the long haul because you cannot really look for short-term trading or gains in an instrument where everything is synchronized with global markets and reacts violently to events.
Two decades back, that ability to see mark-to-market losses in a P&L was not there with many retail investors. Since then, investors, both retail and HNIs have become far more mature and sophisticated. Institutions have also been investing in India for more than three and a half decades. India offers a wide variety of offerings to global investors with more than 7,000 companies listed on our exchanges, providing different segments and flavors. This has consistently been evolving in Indian markets.
Radhakrishnan Chonat: You have managed money through bull markets, corrections, liquidity-driven events, and the recent uncertain global environment. What have these cycles taught you about investor behavior, and what mistakes do investors repeatedly make?
Deepak Gupta: One of my greatest learnings is that India has predominantly been a growth market. In India, growth always gets rewarded. At times, one gets attracted toward “deep value” expecting it to generate higher alpha, but on a long-term basis, growth always comes out on top. When investing in an emerging market like India, you are betting on growth because we remain among the fastest-growing economies with a large population, rising aspirations, and a per capita income that is still meaningfully lower than other emerging markets. Growth becomes the biggest vector for anyone to look at India. One should never lose the prism of growth.
A common mistake investors make is getting carried away when a stock collapses due to a factor not related to the company itself. The simplest thing is to “press the button” and exit. I feel that when an event is related to the economy or the global environment rather than the company per se, one should remain patient, digest the news, understand the impact, and speak to experts before reacting. Markets often overreact, which can also provide an opportunity for investors waiting on the sidelines to enter.
Radhakrishnan Chonat: From a fund manager lens, where do you see sustainable opportunities in India over the next 5 to 10 years, and where do you think markets are currently ahead of their fundamentals?
Deepak Gupta: If you had asked me this a year or two ago, I would admit markets were running ahead of fundamentals. But over the last two years, there have been many positive events the market has ignored. First, the political climate has never been more stable, allowing for a collective push toward reforms, especially in urban infrastructure. For corporates to invest in capex, they need stable tax reforms and policies rather than uncertainty every few years.
Secondly, regulators have followed a growth-push policy, and interest rates have been lowered by about 125 basis points over the last 18 months, making the cost of debt more palatable. Lead indicators like auto sales and cement oftake are positive. India has also closed multiple Free Trade Agreements, including with the US. Corporate earnings for the Nifty 500 have been consistently tracking at double-digit levels, with Q3 earnings around 15-16%.
Our markets have underperformed recently because global markets are focused on AI, and India is seen as an “anti-AI play” as we don’t have much to showcase there. Additionally, the currency has been depreciating, which concerns FII investors. While we’ve seen record FII selling, it has been absorbed by domestic mutual fund flows. FIIs still own 16% of the Nifty 500 (representing about 54% of FII holdings in the country), so we cannot ignore them. We think as the AI buzz reduces, people will see that Indian markets are reasonably valued and no longer expensive as they were two years ago. We are also the only country in the Asia pack that hasn’t raised pump prices despite crude oil volatility, as the government is trying to protect the consumer from inflation.
Radhakrishnan Chonat: As a fund manager, how do you separate genuine long-term beneficiaries of AI from businesses that are simply being rerated because AI is the market buzzword?
Deepak Gupta: AI is here to stay; it is going to be as common as using a mobile phone. However, AI is an enabler. Every business can become more efficient using it. The real beneficiaries are companies adapting AI early to reduce operating costs and improve efficiency rather than those claiming AI will drive their top line. AI focus should be on cost efficiency to deliver better margins. Let’s not forget the old computer parlance: GIGO (Garbage In, Garbage Out). AI provides results based on the information fed into it; it should be used as an enabler and not the final word on how a business is managed.
Radhakrishnan Chonat: You have spoken about healthcare, defense, and financials in the past. How do you assess sectoral leadership now, especially after recent rerating’s?
Deepak Gupta: The last few years have taught us that we must be Atmanirbhar (self-reliant). Consequently, manufacturing businesses, which were out of fashion five years ago, have come back in vogue. Manufacturing must be the backbone of the economy, and we believe the entire manufacturing space, including capital goods and infrastructure, will be long-term beneficiaries.
Regarding healthcare, we remain extremely “sanguine.” India’s population is aging, with the average age now crossing 30. India remains the “diabetes capital of the world,” making healthcare services a key beneficiary. Crucially, India is one of the few markets with consistent price increases in drugs, unlike the deflationary environments in the US or China. Pharma companies make very good profits from India. We believe there is still more scope for outperformance in manufacturing and healthcare because their earnings are consistent and less dependent on food prices or currency fluctuations.
Radhakrishnan Chonat: How do you balance data, valuation discipline, and market narratives in this age of constant noise? What creates an “edge”?
Deepak Gupta: The edge for a fund manager is to cut the noise and focus on data while never losing the valuation prism. At JM Financial, we have a philosophy called “GEEK,” which stands for Growth in Earnings, but specifically the Quality of that growth. It cannot be based on one-off events. We use a GARP (Growth at Reasonable Price) model and look at the PEG ratio. We ensure our portfolio’s PEG never crosses more than 1.5x. According to us, anything below 1.0x is reasonably cheap, 1.0 to 1.5 is reasonably valued, 1.5 to 2.0 is slightly overvalued, and above 2.0x is extremely expensive.