War or no war, the fundamentals of investing remain unchanged: Sanjay Grover of Baroda BNP Paribas Mutual Fund

How are you managing war-related uncertainties in your portfolios?

Markets tend to react sharply to geopolitical events, especially in the early stages. However, over time, volatility usually stabilizes as markets adjust. What makes the current situation more complex for India is its dependence on energy imports. Any spike in energy prices directly affects inflation, the current account deficit, and growth. If such conflicts persist, they could accelerate structural shifts—like increased adoption of alternative energy—similar to how Covid accelerated digital transformation. At present, liquefied petroleum gas (LPG) prices are a key area of concern.

What could be the post-war impact on US and Indian equities?

While the US is relatively less dependent on energy imports compared to India, global energy prices still influence inflation across both economies. Higher energy costs can push inflation up and disrupt interest rate cycles, potentially delaying rate cuts. Even if conflicts end quickly, restoring energy infrastructure takes time, which can prolong supply disruptions. This could lead to short- to medium-term volatility and impact growth forecasts. At the same time, Indian companies could benefit from opportunities in infrastructure rebuilding.

Where are you currently seeing attractive investment opportunities?

Predicting the duration of geopolitical conflicts is inherently difficult, as seen with the prolonged Russia-Ukraine situation. Extended tensions could keep crude prices elevated, disrupt supply chains, and weigh on global growth and earnings. However, such corrections often create compelling entry points for long-term investors.

We are currently seeing attractive opportunities in undervalued small- and mid-cap stocks, particularly in sectors like defence, real estate, and speciality chemicals. Real estate, in particular, is benefiting from strong urban demand and infrastructure momentum. For long-term investors, staggered investments through diversified equity funds remain a prudent way to navigate volatility.

This combination allows us to serve investors across India more effectively, including in underpenetrated markets. Our focus has been to leverage both sponsors’ strengths to outpace industry growth—and we’ve been consistently delivering on that.

While Bank of Baroda remains a key distribution partner with significant untapped potential, we also work closely with a wide ecosystem of partners, including banks, brokerage firms, MFDs, and RIAs. Today, we have over 28,000 MFDs onboarded and a robust infrastructure to support all channels. Around 49% of our AUM is equity, 36% debt, and 15% hybrid. AUM sourced from Bank of Baroda stands at approximately ₹13,000 crore, which is under 30% of our total AUM—highlighting a strong diversification beyond the bank channel.

Is your GIFT City fund for retail investors? How should investors view it for global diversification?

We currently offer an outbound US Small Cap Fund structured as a Category III AIF, primarily for non-retail resident Indian investors. The minimum investment amount is $150,000. It is structured as a Category III AIF feeder fund, investing in the BNP Paribas US Small Cap Fund, which has historically demonstrated the ability to outperform its benchmark. Over time, such strategies have shown the potential to deliver strong returns. As portfolios grow, geographic diversification becomes increasingly important. A comparison of India and US market returns—along with currency movements—highlights the value of global exposure. GIFT City is a step forward in making international investing more accessible. We are also working on launching an inbound fund for NRIs and other global investors.

What should investors do in times like these?

The fundamentals of investing remain unchanged—align your asset allocation with your financial goals and risk tolerance. A well-diversified portfolio, built through disciplined and regular investing, helps manage volatility and improve long-term outcomes. Investors should continue their investment plans irrespective of market conditions. Periodic reviews are important, but if your portfolio is aligned with your goals, staying invested is often the best strategy.

For those with surplus capital and a higher risk appetite, volatility can present attractive staggered investment opportunities. Also, while recent SIP returns may appear muted, it’s important to remember that SIPs are designed to navigate volatility. Staying consistent is key.