Investors can no longer expect both steady returns and better-than-market performance at the same time, Motilal Oswal Asset Management Company CEO Prateek Agrawal has said.
"Gone are the times when you will get consistent and good performance at the same time," Agrawal said in a recent interview on NDTV Profit.
He said investors can either choose a fund that stays close to the market index and delivers more consistent performance, or choose a fund that aims for better returns but can also be more volatile.
"Be a consistent performer, which is close to index outcomes, or good performance, which will mean volatile as well," he added.
According to Agrawal, the earnings growth outside the main market index is now much higher than what the index is delivering. He sees this as an opportunity to look for higher returns. However, he said higher growth also means investors should be prepared for ups and downs.
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Agrawal said this is because the market is going through a period of disruption, with many new sectors and companies emerging. He pointed to digital companies, platform companies, electric vehicle companies and online brokers. Many of these companies were not around or were much smaller 5-10 years ago.
He said consistency often means staying close to the index, adding that Motilal Oswal AMC runs funds with around a 90% active ratio. This means its funds can perform differently from the index.
"So, in times when index does well, we may not. And at other times when index is not doing so well, we may," he said.
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Agrawal also recommended people to look for companies where growth could continue for four years or longer. "First, find those spaces. And then find the companies which are best positioned in those spaces and back them," he said.
He also said that a stock that looks expensive today may look cheaper if its growth continues for longer than expected.
Agrawal also warned against over-diversification. According to him, investors who hold too many fund managers can end up owning almost the entire market while also paying active management fees. "The idea is to make the client win," he said.
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