Mr. Dhaval Gala
Portfolio Manager - Equity, Aditya Birla Sun Life Mutual Fund.
Mr. Dhaval Gala is a Fund Manager and Senior Analyst with Aditya Birla Sun Life AMC Limited (ABSLAMC). He has an overall experience of 19 years in equity and capital market space. He joined ABSLAMC in February 2011 as a part of the Equity Fund Management and Analyst team. He specializes in Banking and Financial Services sector.Prior to joining ABSLAMC, Dhaval has worked with B&K Securities Limited and J P Morgan Chase India Private Limited.Dhaval is an MBA in Finance from N L Dalmia Institute of Management and Research, Mumbai
Please note we have published the answers as it is received from the Fund Manager of Aditya Birla Sun Life Mutual Fund.
Q1. With Nifty valuations now closer to their long-term average after two years of time correction, what is your near-term outlook- do you see the market entering an earnings-led re-rating phase, or is more consolidation likely before the next leg up?
Ans: The valuation correction over the past two years has materially improved the attractiveness of Indian large-cap equities.
The Nifty 50 currently trades at approximately 18.9 times 12-month forward earnings, representing a discount of around 10% to its historical average. This provides a more favourable risk-reward profile, particularly given improving earnings visibility and resilient domestic fundamentals.
In contrast, the mid-cap and small-cap indices trade at approximately 27.5 times and 22.9 times forward earnings, representing premiums of 15% and 31% to their respective long-term averages. Although valuations have corrected from the September 2024 highs, returns in these segments are likely to depend increasingly on earnings execution rather than further multiple expansion.
Q2. July's AMFI data showed small-cap funds attracting ₹7,767 crore and mid-cap funds ₹6,192 crore, while large-cap funds saw an outflow of ₹1,322 crore. What does this flow asymmetry tell you about how investors are perceiving risk today, and what should an MFD say to a client whose portfolio has increasingly shifted towards mid- and small-caps?
Ans: The flow asymmetry reflects investors’ preference for growth and recent performance, but it should not be mistaken for a lower perception of risk. Mid- and small-caps can offer attractive long-term opportunities, but they also carry higher volatility and valuation risk.
For an MFD, the message should be simple: don’t chase flows; assess the portfolio’s overall risk and asset allocation. If mid- and small-cap exposure has risen significantly, it may be an appropriate time to rebalance rather than take incremental risk, while staying invested for the long term.
Q3. Management quality is often cited as an important part of fundamental investing, but it can be difficult to assess objectively. What are the key checks and signals in your investment process that help you differentiate between management teams that genuinely create long-term value and those that merely have a good track record or a compelling narrative?
Ans: The investment research team comprises experienced sector analysts who work closely within a collaborative research framework. Coverage responsibilities are organized by sectors, enabling analysts to develop deep domain expertise while ensuring comprehensive monitoring of investment opportunities across the market. Research universe consists of ~600 listed companies, covering the large-cap, mid-cap, and select small-cap segments. The universe is further bifurcated to have Tier I and Tier II companies to facilitate deep research/light monitoring.
Q4. Is stock selection in the portfolio primarily driven by the fund manager's individual discretion, or is it guided by the AMC's overarching investment philosophy and process? How much latitude do fund managers typically have to deviate from house principles?
Ans: Investment decision-making process combines both top-down and bottom-up approaches, supported by a collaborative investment framework.
From a top-down perspective, the AMC begins by assessing the broader macroeconomic environment, including economic growth, inflation, interest rates, policy developments, and global trends. This helps us identify sectors and themes that are likely to benefit from the prevailing economic cycle.
The bottom-up approach complements this by focusing on in-depth fundamental research on individual companies. The investment team evaluates factors such as business quality, management capability, competitive positioning, financial strength, growth prospects, and valuation to identify companies with sustainable long-term potential.
The process is highly collaborative, with regular discussions among fund managers, research analysts, and the investment committee. Differing views are encouraged, as they help challenge assumptions, test investment hypotheses, and strengthen conviction. Investment recommendations are rigorously debated using research, data, and risk considerations before arriving at a decision. Inclusion of a stock in Investment Universe is subject to approval of the Chief Investment Officer & Investment Committee. While investment decisions are informed by collective research and deliberations, the fund manager retains the final investment authority and is accountable for portfolio construction and execution. This structure ensures that decisions benefit from diverse perspectives while maintaining clear ownership and accountability for portfolio outcomes.
Q5. Buying a stock is often easier than deciding when to sell it. What are the key triggers that make you exit a stock, and how do you maintain the discipline to accept that you may have made the wrong call and cut the position rather than becoming emotionally attached to the original investment thesis?
Ans: The sell discipline is primarily based on the investment team’s judgement rather than a fixed or mechanical process.
Systematic factors include monitoring regulatory limits, portfolio exposures and position sizes.
Subjective factors include changes in the investment thesis, company fundamentals, valuation, management quality and the overall risk-reward profile.
There are no fixed or predetermined sell triggers. The decision to trim or exit a position is made based on the prevailing circumstances and overall portfolio considerations
Q6. With multiple AMCs now entering the SIF space, how do you see the industry evolving over the next 3–5 years? And from an investor’s perspective, who should consider a SIF, and what role should it ideally play in their overall portfolio?
Ans: The launch of the SIF framework is arguably one of the most significant developments in the Indian asset management industry in recent years. By creating a regulated category between traditional Mutual Funds and more exclusive structures such as PMS and AIFs, SEBI has opened the door for sophisticated investment strategies to a much wider set of investors. SIFs combine the transparency, governance, liquidity and disclosure standards of mutual funds with greater portfolio flexibility, including long-short, dynamic asset allocation and advanced risk management strategies.
Over the next 3–5 years, we believe the industry will evolve along three broad dimensions:
1. Greater Investor Adoption and Product Innovation As investor awareness increases, SIFs are likely to emerge as a meaningful allocation for affluent and HNI investors seeking solutions beyond traditional long-only funds. We are already witnessing strong industry participation, with several leading AMCs launching strategies across equity, hybrid and long-short categories, and the number is expected to grow further as track records get established.
2. Shift Towards Outcome-Oriented Investing Investors today are increasingly focused on risk-adjusted returns rather than absolute returns alone. Strategies that seek to participate in upside while managing downside risk, reducing drawdowns and navigating different market environments are likely to gain prominence. Long-short and dynamic allocation strategies within the SIF framework are well positioned to address this evolving investor need.
3. Emergence of SIFs as a Distinct Portfolio Bucket Just as hybrid funds and international funds have evolved into dedicated allocation categories, we expect SIFs to become a separate allocation bucket within investor portfolios. Over time, investors and advisors may view SIFs as tools for diversification, risk management and alpha generation rather than simply another equity product.
Who Should Consider a SIF?
SIFs are best suited for investors who:
Have a sizeable investment corpus and meet the minimum investment requirement of ₹10 lakh.
Understand market cycles and are comfortable with relatively sophisticated investment strategies.
Are looking beyond traditional long-only equity investing.
Seek better risk-adjusted returns and portfolio diversification.
Have a medium to long-term investment horizon.
What Role Should SIFs Play in a Portfolio?
In our view, SIFs should typically complement, rather than replace, a core mutual fund portfolio.
A traditional portfolio can continue to be built around diversified equity, debt and hybrid funds, while SIFs can serve as a satellite allocation aimed at:
Enhancing portfolio alpha.
Managing volatility and drawdowns.
Accessing differentiated strategies unavailable in conventional mutual funds.
Generating returns across varying market environments.
Source: Internal Research
Mutual fund investments are subject to market risks, read all scheme-related documents carefully.
