Indian equities merit higher foreign allocation due to strong structural fundamentals, said Ramneek Kundra, chief investment officer at DSP Pension Fund Managers. However, elevated valuations remain a concern, he told Mint in an interview.
If India remains expensive, should investors consider global opportunities? Kundra said home-country bias is common, but concentrating on a single market does increase risk.
Kundra said even though National Pension System (NPS) is a great product, its low fund management fee also limits pension funds’ ability to invest in marketing and attract distributors.
Edited excerpts:
Many global brokerages have downgraded India amid inflation-related worries due to the war. What is your sense?
The business and the stock have to be separated. India as a business looks great. But the stock itself, the valuation of our index is not that attractive. When I look at India it looks good as a business and one would want to be allocated to it. But would I buy it at this price with the Nifty 50 trading at 21 times? The S&P500 trades at 24 times earnings, with globally dominant companies growing faster. For example, Google’s Cloud Revenue grew 63%. Meta’s number of impressions grew 19%. China (though not easily comparable) trades at 10 times earnings with decent growth. Currently, it is tough for India to compete for an allocation in a global portfolio.
With India’s valuations elevated, does the case for investing still persist?
A zero allocation to India isn’t ideal, but from a global investor’s perspective, India remains a relatively small part of the opportunity set. It accounts for roughly 4% of the global market index, so even an underweight position would mean just 2–3% of a portfolio for a typical foreign institutional investor (FII).
That said, India deserves a higher allocation given its structural strengths. While the underlying business is strong, the valuations are not attractive.
But India’s premium to emerging markets has come down from 109% to 65%, but still that is a lot of premium. We may wonder if India deserves such a premium, maybe yes. But India still imports 85% of its oil usage where higher oil prices will lead to lower discretionary spending.
Along with this, tax on capital gains and currency risk is a key concern for global investors. India saw one of the sharpest currency depreciations in 2025, which erodes returns in dollar terms. This impacts -adjusted returns, making it harder for investors to allocate capital to markets facing currency pressure.
So FIIs have a lot of options apart from India, they have a buffet.
Will inflation-related fears impact us more?
It affects everyone, but not equally. We are importing about 85% of our oil, so even a 20% increase in crude prices would knock off earnings by a lot. It may also impact countries like Brazil due to its high weight in .
There is another narrative that Indians should be investing outside. How do you look at the global investing theme?
Everyone should be diversified. It is not just Indians who have a home-country bias. But concentrating on a single country does create a lot of risk.
Won’t now looking at global markets mean investors are chasing a rally which has already happened?
That always happens. Investors chase returns. But that behaviour doesn’t reward investors really, really well.
Since the war, Nifty has recovered 70% of its fall. Even if we go back to the pre-war levels, will we see a rally further?
That will eventually happen but market valuations are not lucrative for us to see a lot of buying. Further, there are still some risks. Crude staying above $100 could pan out bad and impact discretionary spending. Then there is a scenario for earnings downgrade and impact which deters the sentiment at least for FIIs.
Retail investors bought around ₹40,000 crore in March when the markets fell. Have retail investors really matured?
One argument is the retail has matured and they were buying the dip. But is it good to buy a dip even at this valuation? Should they wait or should they buy when there is another 15% drawdown. Because you never know if earnings will be further downgraded. The Nifty50 is trading at 21 times earnings and if earnings fall further, Nifty becomes even more expensive.
We see many mutual fund schemes with low active shares that hug their benchmarks. The reason is that if the benchmark performs well, the fund returns align with it. Another reason is that taking calls away from the benchmark may require significant alpha to outperform considering some calls may go wrong. How do you view it?
We run a very high active share compared to our peers because we believe many companies are uninvestable. We believe that only a few stocks are truly cheap at any given point. It is unlikely that 100 stocks will be cheap simultaneously unless there is a sharp market drawdown.
Over time, we have believed that quality is critical. Companies with high leverage excluding financials, are often fragile, as they may be forced to raise capital at the worst possible time. Therefore, we remain cautious about these risks and maintain a high active share to avoid companies that fall below our quality threshold.
What are the drawbacks of having a high active share?
The drawbacks are huge. You would have one year of outperformance and another year of underperformance. But the probability of outperformance increases materially if you focus a lot on quality and the entry price. That’s why we see a lot of funds have similar returns, because most of the time you are betting on the fact that your calls will go right, and a lot of times they don’t.
What are the challenges with scaling up a National Pension System (NPS) business?
The deeper challenge here is that non-government adoption in the National Pension System (NPS) has been low compared to its potential. It is a good product in terms of tax benefits. The tax advantage itself can act as an outperforming return, even if the underlying investments only match index performance.
Another issue is that retirement savings are largely invisible until you actually retire. You don’t see tangible gains for many years, and contributions from most individuals tend to be small.
Despite this, you don’t see asset management companies marketing NPS aggressively. The product is designed as a low-cost offering by the regulator to maximise reach across Indians. Due to these low fees, pension funds are unable to invest meaningfully in marketing. At the same time, distributors cannot be paid much, which reduces their incentive to allocate resources toward selling the product. These are key structural challenges.
That said, NPS offers strong tax benefits, and as adoption increases, more people are likely to realise that it helps them save significantly over time.