Are Indian investors changing the way they invest?
In this episode of Your Money Matters, Morningstar CEO Kunal Kapoor discusses the biggest trends shaping India’s investment landscape.
From resilient SIP flows despite market volatility to the growing popularity of passive investing, private markets and global diversification, Kunal Kapoor explains what investors should be watching in the years ahead.
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What Kunal Kapoor said
Written from the verified transcript and checked against it. Every figure links to the moment it was said.
Kunal Kapoor, CEO of Morningstar, discussed the resilience of Indian retail investors through SIPs despite two years of underperformance in Indian equity markets. He noted that frequent investing tends to yield better returns than market timing, but warned that a meaningful downturn could test investor behavior. Kapoor addressed the rise of SIFs, predicting that technology will enable more personalization in investing, moving beyond high-net-worth individuals. On active versus passive funds, he reframed the debate as low cost versus high cost, advising investors to choose low-cost versions of either. He said private markets, especially private credit, will likely see more product availability as an addition to, not a replacement for, public market investments, recommending a small, illiquid allocation with healthy skepticism. Kapoor advised simplicity in portfolio construction, matching investment time horizons to goals, and predicted Indian investors will increasingly own non-Indian investments.
Key takeaways
SIP flows indicate investors are staying the course despite two years of Indian equity underperformance, but a meaningful downturn could trigger wrong-time exits.
Kapoor reframes active versus passive as low cost versus high cost, urging investors to pick low-cost versions of either.
Indian investors will own more non-Indian investments in the years ahead as options expand.
Numbers and commitments
Figure
What it refers to
Type
At
6 months to 3 years
Time horizon for short-term needs, avoiding risky assets
Hello and welcome. You're watching your money matters here at NDTV Profit. I'm Mahima Jani and in today's edition, in the first segment, we're going to talk about how structurally we've seen strong retail flows in terms of where SIP goes despite the way markets have been. And we'll try to understand as to where the industry is heading towards, what's the next leg of growth looking like. And to take this conversation ahead, we're now joined by Kunal Kapoor who's the CEO of Morningstar. Joining us now, Kunal, a pleasure speaking to you. I think I'll start with the fact that structurally we've seen such good growth in SIP numbers, right? On a month-on-month basis we've seen that, and despite the way markets have been, people have been resilient and have kept their SIPs intact. So despite market war, this is the trend that we've seen. What do you make of this trend? And once we expect and see markets to bounce back, do you think that this momentum shall further rally from here on? Is that the reading?
Hi Mahima, thanks for having me with you today. You're right, flows have been quite good through SIPs and I personally view this as a positive signal. It indicates that investors are staying the course. As you said, for the last two years at least, Indian equity markets have underperformed global markets in a meaningful way and so the fact that investors are being resilient is good. What does it mean for the future? Hopefully, it means that there's more of this type of investing because our data shows that investors who put money to work on a frequent basis tend to do well over time and that those who are trying to time the markets, trying to get in, trying to get out, tend to have some difficulty in terms of the returns that they achieve. I will say as much though, as returns have maybe not been fantastic in India in the last two years, they also have not really tested investors in a meaningful way. And this is true not just of India but it's true of a lot of global markets. And so I do worry a little bit that if we have a meaningful downturn, we'll see a return to some of the behavior that investors tend to have, which is trying to get out at the wrong time. But I'm really hopeful based on what we've seen with SIPs.
And in terms of how behavior has been in the last two odd years, especially when we've seen markets under pressure, markets consolidating, etc., how would you term the behavior of retail investors in this market? Because we've seen that there has been outperformance in terms of where the broader markets go, your midcaps, your small caps, etc., and there have been flows that have gone up for those SIPs, right? So how do you define that?
There's always a little bit of FOMO, investors always have a little bit of that, and so there's a little bit of performance chasing and you see that even with the SIPs. But the way I think about it and what I think is important is investors have stayed the course and they fought their worst instincts. Usually it's interesting, right? In life, most people love a discount. If you're going to the market one day and you've wanted to buy something and suddenly there's a discount on it, you're more inclined to feel good about buying it. With investing, I've often seen investors do the opposite. They may have wanted to invest in a stock or a mutual fund and if it goes down and suddenly discounted, they have less of an interest in buying it. And so far we have not seen that behavior, which is good. And I hope that if there is a more meaningful downturn, investors kind of stay the course and I'm optimistic and hopeful that they will.
What about SIFs, Kunal? Because that has also picked up quite a bit. It bridges the gap between your mutual funds, I mean directly investing in mutual funds, and PMS as well. How are you viewing that as a way by which people are making their investments more effective and maybe better returns per se? Has there been traction for SIFs is what you've seen and what is the trajectory looking like?
There has. I mean, I think broadly we ask the question about does personalization matter ultimately. And I think what you're going to see in the next decade is that there are going to be more technology tools that will allow an investor to personalize their experience. And so far, personalization has been an expensive game, which is why you tend to see high net worth individuals, family offices, and those folks primarily going through the route of customizing. And I think what you're going to start seeing is that the technology is going to enable even more people to customize in time. And I think that should keep interest in investing high as well.
The other aspect is that passive investing has gained a lot of traction because people want to kind of invest and forget, right? And this is an aspect...
Definitely, it is agreed. But especially in global funds, because we had the report of one year of how GIFT City funds have done active versus passive and passive done better. So wanted to understand from that perspective, five years down the line, how are you viewing as to how the active-passive gap is going to be like? Do you think that's going to narrow?
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