Sundaram MF sees AUM doubling in three years, flags small-cap inflow risks

Sundaram Asset Management Company CEO cautions that small-cap inflows warrant vigilance and notes that global factors such as oil prices, interest rates, and AI-related sentiment will shape India's equity outlook.

Mumbai Inflows into equity schemes of mutual funds have been buoyant despite markets crashing at regular intervals leading to most schemes registering mark-to-market loss. However, SIP inflows have been hitting a new high almost every month.

Anand Radhakrishnan, Managing Director and CEO, Sundaram Asset Management Company

spoke to businessline on various aspect of markets. Edited excerpt:

Your assets under management crossed ₹1 lakh crore in January but have since declined. Where will the next phase of growth come from?

We see three sources of growth.

First, investors and distributors are diversifying beyond larger funds towards smaller AMCs with comparable returns.

Second, we are gaining market share in fixed income, particularly in liquid, overnight, money market and short-term funds, where our presence remains relatively small.

Third, our alternatives business is expanding through performing credit strategies focused on real estate and mid-market lending, as well as equity PMS and alternative investment funds (AIFs). Liquid fund assets can be volatile because money moves in and out frequently.

Our focus is on building a more sustainable growth trajectory across these businesses.

We see three sources of growth. First, investors and distributors are diversifying beyond larger funds towards smaller AMCs with comparable returns. Second, we are gaining market share in fixed income, particularly in liquid, overnight, money market and short-term funds, where our presence remains relatively small. Third, our alternatives business is expanding through performing credit strategies focused on real estate and mid-market lending, as well as equity PMS and alternative investment funds (AIFs). Liquid fund assets can be volatile because money moves in and out frequently. Our focus is on building a more sustainable growth trajectory across these businesses.

Where do you see Sundaram MF in the next three financial years?

We believe the company can double its current AUM in three years, potentially reaching ₹2 lakh crore by 2030. We have slipped in the AMC rankings at times, partly because the number of fund houses has increased.

Our priority, however, is growing the business rather than improving our rank.

We believe the company can double its current AUM in three years, potentially reaching ₹2 lakh crore by 2030. We have slipped in the AMC rankings at times, partly because the number of fund houses has increased. Our priority, however, is growing the business rather than improving our rank.

Which segments are likely to grow faster?

Alternatives are growing faster, and specialised investment funds (SIFs) could also gain traction. Ultimately, growth will depend on product relevance and investor demand. Within mutual funds, flows tend to concentrate in a few successful schemes rather than being distributed evenly across an AMC's entire product range.

Large-cap and mid-cap funds, focused strategies and thematic categories such as services and business-cycle funds offer opportunities for us. SIFs could grow faster in percentage terms because they are starting from a small base. But the absolute size of the business is more important than the growth rate alone.

Alternatives are growing faster, and specialised investment funds (SIFs) could also gain traction. Ultimately, growth will depend on product relevance and investor demand. Within mutual funds, flows tend to concentrate in a few successful schemes rather than being distributed evenly across an AMC's entire product range. Large-cap and mid-cap funds, focused strategies and thematic categories such as services and business-cycle funds offer opportunities for us. SIFs could grow faster in percentage terms because they are starting from a small base. But the absolute size of the business is more important than the growth rate alone.

SIP inflows have remained resilient despite market volatility. What is driving investor participation?

Investors increasingly understand rupee-cost averaging and the benefits of investing through market cycles. They also recognise that SIP returns may be subdued during weak markets, while accumulated units can appreciate when markets recover.

However, there is some churn, with existing investors stopping SIPs even as new investors enter the market. Some may also be shifting from lump-sum investments or underperforming thematic funds to systematic investments. For AMCs, SIPs provide greater visibility on future flows than lump-sum investments, which can fluctuate sharply from month to month.

Investors increasingly understand rupee-cost averaging and the benefits of investing through market cycles. They also recognise that SIP returns may be subdued during weak markets, while accumulated units can appreciate when markets recover. However, there is some churn, with existing investors stopping SIPs even as new investors enter the market. Some may also be shifting from lump-sum investments or underperforming thematic funds to systematic investments. For AMCs, SIPs provide greater visibility on future flows than lump-sum investments, which can fluctuate sharply from month to month.

Are Indian investors taking excessive risks by increasing their exposure to mutual funds and equities?

I do not believe Indian investors, as a group, are overexposed to mutual funds or the stock market. Participation has increased significantly over the past five to six years, but many households remain under-invested in mutual funds.

That said, flows into individual segments need to be monitored. Some small-cap funds are attracting substantial inflows, warranting caution at the segment level. Sundaram's own small-cap fund has not experienced similarly high inflows.

I do not believe Indian investors, as a group, are overexposed to mutual funds or the stock market. Participation has increased significantly over the past five to six years, but many households remain under-invested in mutual funds. That said, flows into individual segments need to be monitored. Some small-cap funds are attracting substantial inflows, warranting caution at the segment level. Sundaram's own small-cap fund has not experienced similarly high inflows.

Investors appear to be favouring small-caps over large-caps. Is this sustainable?

There appears to be a flight to safety towards small-caps, partly because foreign investors have been selling large-cap stocks more heavily than mid- and small-cap stocks. This has influenced investor perceptions, even though smaller companies are not necessarily safer.

The trend could change when foreign investors return to large-caps, particularly as valuations become more reasonable. Large-cap investing also offers opportunities beyond the biggest 10 companies, with stock selection depending on growth prospects and valuations.

There appears to be a flight to safety towards small-caps, partly because foreign investors have been selling large-cap stocks more heavily than mid- and small-cap stocks. This has influenced investor perceptions, even though smaller companies are not necessarily safer. The trend could change when foreign investors return to large-caps, particularly as valuations become more reasonable. Large-cap investing also offers opportunities beyond the biggest 10 companies, with stock selection depending on growth prospects and valuations.

What is your assessment of the market outlook amid global uncertainty?

Three factors will influence the outlook: energy prices, global interest rates and the global artificial intelligence trade. Oil prices need to moderate to improve India's prospects.

High single-digit dollar returns available in fixed income can make emerging markets less attractive to global investors. India also has relatively fewer companies participating directly in the global AI investment theme compared with some other markets.

A moderation in these risks could improve investor sentiment and flows into Indian equities. While oil prices and AI-related sentiment can change quickly, global interest rates may take longer to adjust.

Of the three, interest-rate risk is likely to persist the longest.

Three factors will influence the outlook: energy prices, global interest rates and the global artificial intelligence trade. Oil prices need to moderate to improve India's prospects. High single-digit dollar returns available in fixed income can make emerging markets less attractive to global investors. India also has relatively fewer companies participating directly in the global AI investment theme compared with some other markets. A moderation in these risks could improve investor sentiment and flows into Indian equities. While oil prices and AI-related sentiment can change quickly, global interest rates may take longer to adjust.

Of the three, interest-rate risk is likely to persist the longest. Your assets under management crossed ₹1 lakh crore in January but have since declined. Where will the next phase of growth come from? We see three sources of growth. First, investors and distributors are diversifying beyond larger funds towards smaller AMCs with comparable returns. Second, we are gaining market share in fixed income, particularly in liquid, overnight, money market and short-term funds, where our presence remains relatively small. Third, our alternatives business is expanding through performing credit strategies focused on real estate and mid-market lending, as well as equity PMS and alternative investment funds (AIFs).

Liquid fund assets can be volatile because money moves in and out frequently. Our focus is on building a more sustainable growth trajectory across these businesses. Where do you see Sundaram MF in the next three financial years? We believe the company can double its current AUM in three years, potentially reaching ₹2 lakh crore by 2030. We have slipped in the AMC rankings at times, partly because the number of fund houses has increased. Our priority, however, is growing the business rather than improving our rank. Which segments are likely to grow faster? Alternatives are growing faster, and specialised investment funds (SIFs) could also gain traction.

Ultimately, growth will depend on product relevance and investor demand. Within mutual funds, flows tend to concentrate in a few successful schemes rather than being distributed evenly across an AMC's entire product range. Large-cap and mid-cap funds, focused strategies and thematic categories such as services and business-cycle funds offer opportunities for us. SIFs could grow faster in percentage terms because they are starting from a small base. But the absolute size of the business is more important than the growth rate alone. SIP inflows have remained resilient despite market volatility. What is driving investor participation?

Investors increasingly understand rupee-cost averaging and the benefits of investing through market cycles. They also recognise that SIP returns may be subdued during weak markets, while accumulated units can appreciate when markets recover. However, there is some churn, with existing investors stopping SIPs even as new investors enter the market. Some may also be shifting from lump-sum investments or underperforming thematic funds to systematic investments. For AMCs, SIPs provide greater visibility on future flows than lump-sum investments, which can fluctuate sharply from month to month. Are Indian investors taking excessive risks by increasing their exposure to mutual funds and equities?

I do not believe Indian investors, as a group, are overexposed to mutual funds or the stock market. Participation has increased significantly over the past five to six years, but many households remain under-invested in mutual funds. That said, flows into individual segments need to be monitored. Some small-cap funds are attracting substantial inflows, warranting caution at the segment level. Sundaram's own small-cap fund has not experienced similarly high inflows. Investors appear to be favouring small-caps over large-caps. Is this sustainable? There appears to be a flight to safety towards small-caps, partly because foreign investors have been selling large-cap stocks more heavily than mid- and small-cap stocks.

This has influenced investor perceptions, even though smaller companies are not necessarily safer. The trend could change when foreign investors return to large-caps, particularly as valuations become more reasonable. Large-cap investing also offers opportunities beyond the biggest 10 companies, with stock selection depending on growth prospects and valuations. What is your assessment of the market outlook amid global uncertainty? Three factors will influence the outlook: energy prices, global interest rates and the global artificial intelligence trade. Oil prices need to moderate to improve India's prospects.

High single-digit dollar returns available in fixed income can make emerging markets less attractive to global investors. India also has relatively fewer companies participating directly in the global AI investment theme compared with some other markets. A moderation in these risks could improve investor sentiment and flows into Indian equities. While oil prices and AI-related sentiment can change quickly, global interest rates may take longer to adjust. Of the three, interest-rate risk is likely to persist the longest.