Interview with Nikhil Rungta, Co-Chief Investment Officer, Equities of LIC Mutual Fund

Radhakrishnan Chonat: Ladies and gentlemen, welcome to another episode of AlphaStreet’s Fund Manager Insights, where we delve deep into the minds of India’s top investment professionals. And today I’m honored to welcome Mr. Nikhil Rungta, Co-Chief Investment Officer of Equities at LIC Mutual Fund Asset Management. He has a distinguished track record across India’s leading financial institutions, including Nippon India, Bajaj Alliance, and SBI Pension Funds. And he brings in more than a decade plus of multifaceted experience in equity research, fund management, and market strategy. A Chartered Accountant and an MBA from NMIMS with additional credentials in FRM and ESG investing, Nikhil is known for his disciplined investment style, deep sectoral insights and forward-looking market approach.

In this episode, let’s explore his market views, his portfolio strategy, and his vision for LIC Mutual Fund’s equity platform. Welcome to our show, Nikhil.

Nikhil Rungta: Thank you. Thank you, Mr. Krishnan. And it’s actually good to be here talking to AlphaStreet and also thank you to all your listeners for listening to me.

Radhakrishnan Chonat: Excellent. Nikhil, let’s start with your career. It has spanned various roles from research analysts to CIO across insurance, family office, mutual funds. What key learnings, if I were to ask you, have you got from these diverse roles? And how has it shaped your investment philosophy as of today?

Nikhil Rungta: See, coming from a chartered accountancy background, I was always fascinated by numbers. But very early in my career, I realized that investing is not just about numbers, it’s also about understanding the businesses, the people, human behavior, cycles, a lot of things there. I started my journey in research in 2008. I started analyzing from grounds up of approach. Those early years taught me something very important. Market reward, discipline and consistency and not just intelligence. Intelligence is just one of the part, but consistency and discipline scores over intelligence in the market. And honestly, I learned more from my mistakes than my successes. There were phases where I made stock picks that looked great on paper, but the market had a different view for that. So that’s when the real lessons came in, the importance of risk management, the importance of patience, importance of not falling in love with your ideas. So over the year, moving into the active fund management, leading teams and now managing investments for LIC Mutual Fund, one thing that has stayed with me, humility is an asset in this business. Markets have a way of humbling even the most confident, I’ll put it that way. So definitely a lot of learnings, more from the mistakes compared to the successes.

Radhakrishnan Chonat: That’s an excellent way of introducing yourself. You have learned more from your mistakes. As we were saying, LIC equals — every household in India knows about LIC, but very few know that LIC has a mutual fund division. Now as the Co-CIO for equities at LIC Mutual Fund, if I were to ask you what are your strategic priorities from the equity desk and how does LIC Mutual Fund position itself in the very competitive mutual fund space?

Nikhil Rungta: So see at LIC Mutual Fund, we are proud of the heritage we represent. LIC, as you mentioned, as majority or almost everyone in India knows, is one of the India’s most trusted brand. At LIC MF, we carry the same legacy of trust, but with a modern research-driven approach. Our goal is not just to launch fund, but also to solve real-life investment needs. Basically, it’s more to do to offer products that are simple, that are transparent, and that are built to last through cycles. That actually helps investor complete his goals or that help investor achieve his goals. We have a wide range of offering multiple products. I don’t want to go into that, more than 40-50 products which we have. We believe that every investor deserves products that are built with a long-term investor-first mindset and not just products that look good only in the marketing material. So the goal of each and every product is designed in a manner that whatever investor needs, whatever goal that particular investor has, he can choose product in that particular manner. So it’s just not a marketing material product. It’s a real-life investment need. We are offering how to solve your real-life investment needs.

Radhakrishnan Chonat: Very interesting. Shifting gears a little bit here, let’s talk about the markets. Where do you currently see the most compelling equity opportunities in the Indian market? Forget the fact that we have been having some volatility, maybe sectorally or thematically. We are not looking at stock-specific ideas. Are there any segments where you are tactically cautious at this point as well?

Nikhil Rungta: If you ask me about being cautious, then I’ll put it this way that in short term, there is a significant amount of uncertainty in the market. But when you move beyond this uncertainty, that is where your wealth multiplier comes into effect. You look at uncertainty, your market will be very volatile, a lot of people will panic, a lot of investors will panic. And that’s why we focus on long-term investing because in your long-term investing, this uncertainty drives down over a period of time. In hindsight, once we are in the future, what we feel is this uncertainty was an opportunity. And it’s not happening not only now, but historically it has been proven whenever these type of aberration, volatility or uncertainty have come in the mother line, we start saying that that was the opportunity. That is what we like to say, I mean, this is a volatility, but yes, see, one thing is very clear, your stock market follows earnings. So research-first approach is what we focus in LIC Mutual Fund. In the last five years from COVID FY20 to FY25, your earning CAGR was around 21-22%. And that was the type of return which we have seen in the market also in the past five years.

Going forward over the next couple of years, we are looking forward to around say 13% growth rate in earnings. And that’s the type of return which you should expect because over a longer period of time, if you see, then what we know is your stock market gives you return which is largely in line with your earnings. I’ll just give you an example of Sensex. Let’s look at last 30 year chart of Sensex. The earning CAGR of the companies in Sensex is 12.5%. Your nominal GDP growth of past 30 years is 12.5%. And your Sensex return in the past 30 years is 11.9% plus dividend yield, which comes to around 12.5%. So what we focus on is earnings should be there, research should be there. And let’s move forward with those earnings and research in mind. So that is our philosophy, volatility, uncertainty, as you rightly asked, it’s there in the market. But what we know is, once this uncertainty is behind, market just moves upward. We have seen not only I mean, today, if we look around the geopolitical tension which is happening with India at J&K border, historically, whenever we see that till the time the war is announced, there is uncertainty in the market. And people are jittery, the volumes in the market also goes down. But once the war is announced, your market moves up, the bottom is made. Why? Because that uncertainty of war which was there is now in the price. It’s already been declared. What next? Let’s move forward. So historically also, we have seen that, of course, it depends upon how long it goes on. But over medium to long term, definitely people make money. Let’s come to the global scenario, the term, tariff and trade war scenario which is going on. See, India is in a very sweet spot today with its labor, huge labor, which we have. We are in demand both from the Western as well as Eastern countries.

Globally, we are amongst, I mean, we are sitting in a very sweet spot that we can garner the best of both the worlds, both East and the West. And as we can already see in the market that President Trump and Secretary, Treasury Secretary, everyone is announcing that we are very close to closing the deal with India is just pending with the Prime Minister or with the parliament and a lot of stuff. Probably, we might be the first one to close the bilateral deal with the United States. But we don’t know when it gets closed down. But what we know is, if there is uncertainty outside in the global market, let’s focus inside. Let’s focus on the companies which are manufacturing in India for consumption in India. So that’s our thought process as of now. We’ll wait for this uncertainty to subside before increasing our exposure to these global focus entities.

Radhakrishnan Chonat: Very interesting, very interesting. Sticking to that same thing, Mr. Nikhil, let’s talk about valuation versus growth because there’s an ongoing debate around very rich valuations in certain pockets of the market. So as a fund manager, how do you balance your valuation discipline with long term growth potential as well when you’re making portfolio calls? Any thoughts on that?

Nikhil Rungta: See, as you rightly asked, value or growth, I mean, when I joined from Nippon to LIC Mutual Fund, this was among the first question which people used to ask me, am I growth-oriented? We are research-oriented. LIC Mutual Fund equity team, if you look at us today, we are a 15 member strong equity team and we are managing only INR17,000 crores of active equity. You look in the industry, 15,000 crores of active equity or sorry, 15 member team manages say INR1 lakh crore to INR2 lakh crores of active equity in the industry as well. We are managing only INR15,000 to INR17,000 crores and that gives us ample amount of time to do our own research. So that’s the second point here, we cannot always go only for value or only for growth. Nowadays, there is a third thing which is going on in the market, momentum-oriented as well. So let me put it this way, say a script has a lot of value in it, but it don’t have a growth, it won’t give me return. And say a script have a lot of growth in it, but it’s trading at 100, 200 PE multiple, then also it won’t give me return. So we need to have a blend of both, blend of value and growth.

Value without growth won’t work and growth without value won’t work. So there is a need of blend of both. Of course, we have specific funds like value fund, but when we talk about value fund, we just don’t talk about the valuation. It’s more to do with comparison of market price with the intrinsic price of the script. So that is where the comparison is and not at the multiple level, just the value level. So we focus on the merger of the two aspects. See our investment philosophy is very straightforward. We focus on bottom-up stock selection. At the index level, the multiples could be haywire, but when it comes to stock specific level, it’s very, very clear. We look for the companies with very strong earning visibility, with clean balance sheets, strong management, and of course, available at reasonable valuation. Reasonable valuation, what I mean here is we focus on GARP model Growth At Reasonable Price.

We also have, I mean, in the market, one, buy at any price. We don’t follow that. It has to be reasonable valuation. We don’t chase fads. We don’t try to predict every market turn. We try to buy good businesses and hold them with conviction. If given a chance, we might probably increase our stake further in those businesses. Risk management becomes very important and this is something we don’t do after building the portfolio, but it’s baked into when we pick up the stock. And if risk doesn’t make sense for that particular stock, then it doesn’t enter our portfolio. So in short, let me put it this way, growth is important, but sustainable growth at a reasonable valuation is even more important for us.

Radhakrishnan Chonat: Very interesting. You mentioned about your risk management approach subtly and given your FRM background, how do you incorporate such risk frameworks into your portfolio construction? And are there any particular metrics or signals that you particularly track? Any insights on your risk management framework would be appreciated?

Nikhil Rungta: See, we have approximately 36 to 37 quantitative risk-driven things, which goes into selecting each and every identified companies. Let it clear those. Of course, when it comes to quality, we cannot put things into numbers. But if I have to put in a single line, then I’ll put it this way, our style is team-driven. Our risk management is team-driven. We encourage open discussions, debates, of course, different perspectives are valued. Ideas are challenged, not people. That is more important. Ideas here are challenged and not people. That itself is our risk management because when 15 people look at the same idea from 15 different perspective, that gives a lot of insight in that particular script. We have a strong framework, but along with the framework, we have also built in the flexibility to adapt when the facts change for a particular company. And we believe that processes must be stronger than individuals. So all those processes are in place as of now. As I mentioned for quantitative, we have different numbers of parameters. For qualitative, we have different number of parameters. One of the things wherein I’ll put it, our equity team is we think like our team is like a cricket team being one of the favorite sports in India. Different specialties in different roles, but wealth for investors. So risk management definitely is important. Talking about the FRM concept incorporating into our risk management, those are quantitative based models, few of which definitely be use in those 36 parameters.

Radhakrishnan Chonat: Very interesting. Ideas are challenged and not people. Let’s talk about the different schemes you have. If I were to ask you among all the flagship equity schemes that LIC mutual funds have on offer, you mentioned close to 30 plus, which ones are you most excited about managing or evolving it further and what will drive their differentiation versus similar funds in the market?

Nikhil Rungta: See, let me put it this way. I’m a small cap specialist. For Nippon, I was a small cap specialist and here as well, I manage small cap fund. I also manage large cap, flexi cap, multi-asset allocation and value fund as well. But yes, small cap being my favorite because I hail from that background. Why small cap? Because when we talk about large cap or mid cap, large cap are the same hundred companies wherein every large cap scheme would invest in India. Mid cap would be same 150 scripts where every mid cap scheme would invest in India. But when we talk about small cap, the AMFI definition for small cap mentions 251st company and beyond. The market cap of 251st company and beyond. I’ll ask you, do you have a number or can you define how many number of small cap companies would be there in India as per AMFI definition?

Radhakrishnan Chonat: I mean 251st onwards till probably 4000 listed space so anything can be in that small cap space.

Nikhil Rungta: 4847 companies in the small cap listed space.

Radhakrishnan Chonat: Wow, okay.

Nikhil Rungta: So when we give this type of opportunity in the market, I can find those opportunities, those hidden gems, those unique opportunities from these 4847 companies only. When we talk about those 100 or 150 companies, everyone is invested in those 100 or 150. I will not be in a position to differentiate myself by investing in same 100 or 150 companies. So this is my personal opinion. I do like small cap because the opportunities there are high. And of course, for me, as you mentioned in my intro, I have around four, five qualifications. I did the ESG certification, which is now known as Sustainability Investing Certificate from CFA Institute. This I did just three years back. So I keep on learning and upgrading myself. When we talk about learning and upgrading yourself, you won’t have a new business, new idea or a new company in large cap or mid cap. They will come only in small cap. So when it’s concerned about your own learning development, then also it’s small cap. So for me, at a personal level, definitely, I like small cap because of the opportunities it gives. Of course, people say that it also includes micro cap, but there is no official definition of micro cap, which is there in the market. But let me put it this way. Few people say that 501 onwards is a micro cap. But 501st company today or as per the latest data, as per AMFI definition, has a market cap of INR11,300 crores. So when I talk to my investor friends who sit outside India and I tell them that in India, micro cap is $1.5 billion company, he laughs at me. So that’s the case. I mean, today, your basket of small cap is so huge, you can actually cherry pick opportunity. So I do like that.

Of course, investing in small cap mutual fund depends upon your time horizon, depends upon the risk profile of the investors. No one should just blindly go into that. I mean, what we generally state is for an investor around 40-45% of his wealth should be invested in asset allocators like multi asset allocation fund or balance advantage fund. 40-45% should be core equity schemes wherein you give power to fund managers to decide the sectors like large cap, mid cap, small cap, multi cap or flexi cap. And 10-15% should be in thematics or sectoral because in thematic and sectoral is the investor who takes the call like where to invest, when to invest, which sector to move on. So that’s our thought process. Last but not the least, when we talk about this 40-45% core equity of large cap, mid cap and all, what we say is, depending upon your risk profile, you choose a scheme because every scheme have that target audience as well. Depending upon your time horizon in the market, you choose a scheme. Something like what I generally say, say if your time horizon is a 10 year, 5 year plus or 10 year say around, then you go for small cap because over a longer period, small cap gives you better returns. Once your time horizon moves below five years, you move from small cap to large or large and mid-cap. Once your time horizon moves closer to three years, you move toward asset allocators. And once your time horizon is less than one year, you move into debt scheme because whatever profit you have accrued over a period of say 5 years, 10 years, you need to save that profit as well. So that is what we focus on.

But yes, given the current market scenario, what we generally say is that in the current scenario, the product which actually reflects what actually is going in the market is the asset allocator, the LICMF multi-asset allocation fund is what we focus on in this type of uncertainty because a decline in one asset is taken care by rise in another asset. Just to give you an example, there is a negative correlation between equity and gold as an asset class. Whenever your equity is down, the gold moves up and you are hedged to an extent. So this product actually is designed to give investors a smooth experience, especially when the markets are volatile and in one asset class might not be sufficient. So our work is not to predict which asset class will be best performing asset class for that particular year. But our goal is to stay invested across all those asset class, but in a proper manner, in a dynamically chosen asset classes so that investors can sleep peacefully while these asset classes are building wealth for them. So definitely in this type of uncertainty, in these type of volatile times, we definitely prefer multi-asset allocation fund type of schemes.

Radhakrishnan Chonat: Very, very insightful. Nikhil, you mentioned about ESG and your certification, right? ESG investing is gaining traction in India, I believe. So how do you see the ESG factors evolving in Indian equities? Have they reached the same standards as you see in the rest of the world? And are they integrated into your decision making process?

Nikhil Rungta: See, first in India, it’s picking up the pace now. We have already seen a lot of top market cap companies are already highlighting the ESG report as mandated by SEBI. So these things, of course, companies with smaller market cap still don’t accept that. They feel like this is more like a burden, a compliance thing. The moment these companies start accepting that this is not a burden, this is required for the environment, for India, for ESG, then definitely things will start moving at a much faster pace compared to today. See, in ESG, G was always there. I mean, not only from now, but decades or ages back. Governance is a thing which we see in each and every company. E and S have just joined in. And why have they joined in? Because of these environmental and health hazards which we are seeing over the past couple of decades.

Things are picking up pace. In India, we have specific ESG schemes as well. Of course, there are periods of volatility, like when we had the Russia-Ukraine war. That was a time when people started thinking about power as an important asset class. And in that, if you start looking for the environment, then you will stay without power at your home. So then coal became an important asset class. I mean, it was all of a sudden ESG compliant. So there is volatility. It will take time. But yes, given what’s happening with the Paris Agreement now, things are moving in the right direction. Of course, US don’t sign that particular thing. They haven’t signed the ESG Charter and all this stuff, but that’s at a global level. But things are picking up. Coming to our investment decisions, in terms of numbers, governance was always there. E and S, we are in the process of building specific models to incorporate ESG in our investing decisions as well. But as of now, let me put it this way, the discussion for each and every investment happens from the ESG perspective as well.

Radhakrishnan Chonat: Got it. Got it. Excellent. Nikhil, to close on a personal note, this is a question that I ask every fund manager. Are there any books on investing risk or decision making or in general that has left a lasting impact on you personally and that you would recommend to our listeners?

Nikhil Rungta: Okay, so two books. First is The Most Important Thing by Howard Marks. This book has taught me about cycles, about risk, about second level thinking and a lot of other aspects. I’ve read a lot of books, but this was one of the books. The second book is Thinking, Fast and Slow by Daniel. This book was actually an eye opener for me about behavioral finance, because that is what impacts the decision making. And in terms, what is happening in the market also gets decided by this behavioral biases only because, see, behavioral finance is the most important thing in the market today. And that is why you get differentiation between the intrinsic value as well as the actual price of the script. And you make profit there. So that book is very important. Let me just summarize this particular thing. I mean, I read a lot of books. I have my own small library as well. Books keep you humble. It reminds you that you don’t know everything in the market or across the globe. And that markets have infinite ways to surprise you sometime in a particular manner, sometime in a different manner.

Radhakrishnan Chonat: Excellent. Stay humble and stay curious. It’s been an absolute pleasure catching up with you, Mr. Nikhil, and I look forward to more such interactions in the future.

Nikhil Rungta: Same here. Thank you, Radhakrishnan ji, and thank you to your listeners as well.