On The Wealth Podcast with N Mahalakshmi, S Naren, Chief Investment Officer of ICICI Prudential Mutual Fund reflected on how equity investing has evolved from chasing big upsides to meticulously managing risk.
At the helm of one of India’s largest fund houses - managing more than Rs 10 lakh crore in assets - Naren has delivered market-beating 20 percent annualised returns for over 20 years.
In this candid conversation, he discusses navigating stretched valuations, the interplay between flows and supply, lessons from new-age companies, sectoral outlooks, and why volatility is now a friend rather than a foe.
This is an edited version of the podcast.
Q: You’re super cheerful. Are markets cheering you up?
Markets have been cheerful for years. The challenge now is different: unlike 2007–10, when banks financed projects and created NPAs, today the stock market is the principal financier. Investors - via IPOs, QIPs, promoter/MNC blocks, and PE exits - are making the capital-allocation calls. Many don’t realize they’re now the core risk-takers. That worries me.
Q: What went wrong then, and what’s the risk now?
Back then, banks misallocated; loans turned bad. Now, investors are over-focused on equity despite our constant “asset allocation” advice (equity, debt, gold, REITs, liquid, etc.). IPOs and placements often come at high valuations - 50-60x P/E or no earnings. We saw something similar in 1992-95: earnings never showed up and investors endured a 1994-2004 'lost decade'. P/E has made multi-baggers and is selling costly to public investors. Has it hurt yet? Not really, but the day to judge is not today.
Read More: S Naren’s new investment mantra: Take the 10% and run
Q: So long-term equity is still fine?
Yes, if you’re in the right companies. We prefer large/flexicaps. And remember, investing isn’t arithmetic; it’s probabilistic judgement. For example, tariffs - nobody knows how it will go.
So avoid the 1990s mistakes, don’t lower portfolio quality, liquidity (by buying unlisted), or capitalization (going too small). Stick to better quality, liquidity, and larger caps; practice asset allocation.
Q: Make the bull case for India, and then bust it. Like Charlie Munger.
Bull case: among the world’s best macros - comfortable fiscal and current account (the latter even in surplus), low inflation, strong growth and demographics, and a multi-decade runway.
Problem: price. Market-cap-to-GDP is among the highest after the US and Japan. Trailing P/Es rival the US; most other markets are cheaper. India is the only very active IPO/PE-exit market right now, and sub-20x P/E valuation are scarce.
Q: Valuations are stretched. In Nifty 50, <20 names trade below 25x, and in NSE 500, ~125.
Exactly. 25x P/E means paying for 25 years of earnings with no growth. Many companies report no growth. And P/E is not cash flow.
Q: Some believe SIP flows will keep valuations elevated – your take?
Why should SIPs go only to small/midcaps and not hybrids? Flows can move prices for 2-3 years, but long-term value needs valuation comfort. If earnings accelerate, fine—but right now, earnings aren’t strong enough.
Q: Markets rebounded sharply after the big slide since last year—are they discounting stronger growth?
Two big supports - RBI has eased rates and kept liquidity ample, and a weak US dollar has investors searching for gold, crypto, EM equities. This year Korea, Brazil and others have outperformed India. India’s macro is solid, and rates - more than earnings - have helped equities.
Read More: Naren’s Big Bet: From China to Brazil, the next big boom isn’t in India or the US
Q: Will earnings surprise in the next 2–3 quarters?
Possible if lower rates + festive season spark spending and credit growth. But credit growth is weak, and daily tariff headlines keep companies cautious.
Q: What will revive demand - cyclical bounce or fiscal push?
A fiscal nudge at the lower end would help. The slowdown is visible in FMCG and footwear; hotels/airlines are fine. The monetary work is largely done; the government will be thinking about fiscal levers to boost lower-tier consumption.
Q: Best-case Nifty return this year?
Impossible to predict. Stick to asset allocation. Nothing is 'cheap': real estate isn’t; gold/silver ran up; rates can’t drop a lot. We like multi-asset for practicing allocation (not because we’re wildly bullish on gold/silver). If anything’s relatively cheap, it’s office space. Residential is up 50–75% in three years.
Q: Tax-adjusted, equity still beats fixed income.
Tax and liquidity make equity attractive. A 10-year hold in a diversified index (say 500 stocks) is fine - just don’t peek at year three.
Q: Any contrarian pockets?
We leaned into oil & gas (refiners; ONGC, BPCL, etc.). Globally, ex-US markets look cheap and have underperformed the US drastically from 2008–2025 - scope for a multi-year move. The MF overseas cap ($7 billion) is used up, though.
Q: Will regulators reopen the MF overseas window?
A: RBI/Sebi will weigh pros/cons. If it opens, diversified ex-US exposure (Korea, Brazil, Taiwan, many EMs) is compelling, and helps investors diversify out of USD. LRS is cumbersome; MF route would be better.
Q: Call on gold after the recent run up?
Keep it only as part of asset allocation; don’t make a big bet now. Indians already over-allocate to gold.
Q: You’ve raised IT exposure too, is that contrarian?
Yes, the sector did poorly. But nothing in India is 'dirt cheap'. We’re doing relative value, not absolute—so upside targets are smaller and more dynamic.
Q: What’s your overall approach in this market?
Our return thresholds are lower now. The fear is big losses when managing public money. We keep hammering asset allocation because equity is not a low-risk asset class. The fact that 2012 to now hasn’t had a big down year doesn’t change the risk profile.
Read More: Investors are the new bankers, markets resemble ’90s boom that went bust: Naren
Q: You said 20-30% upside is fine. How do you manage the downside?
We won’t buy 20 percent downside for 20 percent upside. We aim for lower downside, higher upside, hence large caps. Fund management today is risk management: What’s the upside? downside? what can go wrong? how will management behave if it does?
Q: But stocks react violently to news these days - isn’t that bad for a strategy like this?
No, with balanced advantage and fund-of-fund frameworks we buy dips/sell rises—volatility is a friend. If a 20 percent upside stock drops 5 percent, upside becomes 25 percent. Sometimes we’ll buy with a more certain 10 percent upside because of the scale we manage. And yes, look at last year’s numbers: some asset-allocation funds beat pure equity. We aim for moderate, steady returns.
Q: Do you split portfolios into 'core' and 'trading'?
For some stocks we keep a core weight, plus an auxiliary weight that we dial up/down with price—sometimes using technical ranges. And no, you can’t predict next week’s tariffs.
Q: Do tariffs change India’s story?
India’s a domestic economy and can weather shocks. Tariffs are a global vulnerability, not India-specific.
Q: How do you approach new-age, low-profit, big-TAM companies?
With an open mind. Younger colleagues often frame them better. Overall our record is reasonable, with 1–2 misses. Example: a company listed at Rs 1,500 and fell to Rs 500; after diligence we concluded no capital misallocation, bought, and it turned multi-bagger - despite low promoter stake. Another name made an acquisition we disliked; they turned it around, we changed our view, and it worked. We also missed a stock where a model we doubted actually made money. Continuous learning; we size small until conviction builds, then scale.
Q: Banks: big index weight, fair valuations, but weak credit growth. Can they outperform 3–5 years out?
We need credit growth. Banks proved they can run low NPAs, lending to top corporates and granular retail. But without healthier credit growth, they can’t shine. They’re no longer “cheap”—now fairly valued.
Read More: S Naren sees 90s-style boom-bust risk, says large caps are the only safe harbour
Q: Clean books can mean under-lending. Ships are safest in the harbour, but they are meant to sail…
No - we don’t want bad lending. See microfinance: when underwriting slipped, we removed coverage on both equity and credit. We prefer banks’ disciplined lending.
Q: If lending doesn’t revive, is there any bank story?
If credit growth stays weak, banks won’t do well - just like metals (2013-20) or telecom (2014-20) had barren phases. But our base case is that credit growth returns.
Q: Corporate FCF is high, and they can reinvest for growth. This diminishes the need to borrow…
As long as equity markets fund them at 40–80x P/E, they won’t borrow. If markets tighten/correct, they will—credit growth returns and banks can outperform (even if they fall in the correction).
Q: Pharma/generics: innovation fatigue?
Healthcare spend only rises with aging. Everyone says 2026 is GLP-1’s big year in India; we’ll see. Tariffs and US policy are risks; but the US needs Indian generics. The sector’s a decadal story—but not cheap today.
Q: Specialty chemicals making a comeback?
Likely - but valuations already rose. From Mar-2020 to now, anything discoverable has been discovered - there are too many brilliant stock pickers. Without a correction, easy multi-baggers are rare. Also, markets aren’t ripping because supply (QIPs/blocks/IPOs) is heavy; if supply stopped for three months, markets could jump 15–20 percent broadly.
Q: With faster IPO clearances, is the pipeline a dampener?
Yes. Markets = flows minus supply. Higher supply caps prices.
Q: Thoughts on Crypto. Recommend as part of asset allocation?
After Charlie Munger’s critique, I switched off. Gold/silver don’t produce cash flow either, but they have centuries-old standards and constrained supply (no lab-grown gold yet!). Crypto doesn’t have that.
Q: What are you reading?
Annual reports - 500-600 pages, many excellently written. We’re mostly glancing now; deep value is scarce. We hunt relative value - that alone is a task.
Q: Your personal asset allocation?
Hybrids plus some international funds available in India - mostly ex-US where valuations are cheaper. US tech isn’t my focus. Gold only via hybrid/multi-asset. Silver has already moved a lot.
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