SEBI's equity scheme flexibility could boost downside protection for investors: Quant MF

Sandeep Tandon, CIO of Quant Mutual Fund

• SEBI's new rules allow mutual funds more portfolio flexibility
• Quant Mutual Fund plans tactical multi-asset strategies under new rules
• Quant remains bullish on Indian equities amid global volatility

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The recent regulatory move by Securities and Exchange Board of India (SEBI) allowing greater flexibility in equity scheme portfolios will strengthen risk management and improve downside protection for investors, Sandeep Tandon, CIO of Quant Mutual Fund said. In Quant’s latest monthly newsletter, he described SEBI’s circular on Categorization and Rationalization of Mutual Fund Schemes as a “positive regulatory development,” noting that fund managers can now deploy the residual portion of equity portfolios not only in equities but also in money market and other liquid instruments, Gold and Silver instruments, and InvITs within prescribed limits.

“This added flexibility enhances downside protection and enables asset-class level hedging to improve risk-adjusted returns for investors,” he said.  He highlighted that, for instance, small-cap schemes can now hold Gold or Silver ETFs within limits as a hedge during periods of heightened geopolitical volatility.

The note added that the fund house’s systems are fully aligned to implement these changes and that it intends to tactically deploy multi-dimensional strategies across schemes with immediate effect, within the regulatory framework.

Global risk-off intensifies

Tandon also flagged late-February volatility after the US Supreme Court rescinded global tariffs imposed by the current US administration. This, he said, reinforced Quant’s earlier view that developed market (DM) equities appear increasingly riskier than emerging markets (EM), with complacency indicators near record highs in the US, Taiwan and South Korea.

India remains a structural outlier

He reiterated the AMC's bullish stance on India, calling Indian equities the “world’s premier structural growth story,” supported by nominal GDP growth more than double that of China.

He pointed to the government’s launch of Asset Monetisation Plan 2.0, targeting Rs 16.72 trillion over five years, around 2.6 times the first phase with highways (Rs 4.42 trillion), power (Rs 2.76 trillion) and railways (Rs 2.62 trillion) as key sectors.

India’s relative price-to-earnings multiples, he said, have realigned with historical averages after the recent correction, setting the stage for the next leg of the bull run supported by an improving earnings revision cycle. Support from the RBI is ensuring that the USD-INR pair is peaking rather than breaking out, he added.

Tandon also cited a long-awaited India-US trade agreement to reduce tariffs on Indian imports as a significant catalyst that global capital may be underestimating. Over the medium to long term, he believes markets will reward the enhanced trade dynamics, particularly given India’s strength in export services and forex stability.

Portfolio Strategy

On portfolio positioning, Tandon said Quant has recently increased cash levels to rebuild equity exposure at lower levels. Portfolios remain tilted towards large caps, with select additions in mid and small caps across equity and hybrid schemes. The fund house continues to remain constructive on large infrastructure, select NBFCs, insurance, asset management companies, banks, hotels, pharmaceuticals, telecom and select consumption themes, positioning for what it sees as the next phase of India’s structural growth story.