AI, Asset Allocation & The Future of Investing with Deepak Shenoy, Founder & CEO, Capitalmind

Introduction

Vivek Ananth: Hello everyone and welcome to another episode of Bazaar & Beyond. Today we have with us Deepak Shenoy, Founder and CEO of Capitalmind Mutual Fund and Capitalmind PMS. Deepak is known for his data-driven investing frameworks and his work in portfolio construction and asset allocation.

In this episode, we explore how investors should think about asset allocation and factor-based investing in a rapidly changing environment shaped by AI disruption, inflation cycles, interest rate resets, and global geopolitical shifts.

Deepak, thank you for joining us.

AI and Asset Allocation: Will Traditional Investing Models Change?

Vivek Ananth: I want to start with a question around how asset allocation and factor investing may evolve in the era of AI. Many people believe that AI-driven tools could fundamentally change how portfolios are built and managed. Do you think the traditional frameworks that investors have relied on will change significantly?

Deepak Shenoy: First of all, thank you for having me.

The interesting thing about AI today is that it seems to have become the default explanation for every kind of progress or disruption. But I do not see AI as a threat. I see it primarily as an enabler.

Asset allocation itself is a very simple idea. It is essentially the principle that you should not put all your eggs in one basket. You diversify across different asset classes so that when one asset underperforms, another one can provide stability.

Traditionally, portfolios were split between equities and debt. The idea was that debt would not move in the same direction as equities during market cycles. But in reality, we have seen periods where both equities and debt decline together during crises.

That is why investors increasingly look at other asset classes such as commodities.

Why Commodities Matter in a Diversified Portfolio

Deepak Shenoy: Commodities can provide diversification because they respond differently to economic conditions.

For example:

• Precious metals like gold and silver tend to perform well during periods of global uncertainty or risk.
• Base metals such as aluminium, copper, zinc and nickel are linked to industrial activity and capital expenditure cycles.

When industries like electric vehicles, aerospace or data centres expand, demand for these metals rises. This creates commodity cycles with booms and busts.

The idea is to hold a mix of assets that are not highly correlated. That way, when one part of your portfolio declines, another part can help offset the downside.

How Diversification Reduces Portfolio Risk

Deepak Shenoy: Let us consider a simple example.

Suppose you invest equally in two asset classes.

• One asset falls by 30 percent.
• The other rises by 10 percent.

Even though one asset has fallen significantly, your overall portfolio decline would only be about 10 percent.

So instead of experiencing the full downside of a single asset class, diversification helps cushion the impact.

This is why asset allocation remains one of the most powerful risk management tools in investing.

Multi-Asset Allocation: Why It Works Across Cycles

Deepak Shenoy: Multi-asset allocation funds bring this diversification together in a single structure.

Such strategies have existed for centuries and would have worked even hundreds of years ago. The principle is simple: combine assets that behave differently across economic cycles.

Equities can deliver strong long-term returns but also experience deep drawdowns. Commodities can go through long booms followed by long declines. By combining them, you reduce extreme outcomes.

You may not get the highest possible return like pure equity during bull markets, but you also avoid the worst downturns.

AI as an Enabler, Not a Replacement

Vivek Ananth: Where does AI fit into this framework? Could AI dynamically change asset allocation decisions?

Deepak Shenoy: AI can certainly analyse data faster and provide insights.

But there is an important challenge. Suppose AI tells you today that you should move from one asset to another. The moment you make that change, you incur taxes and transaction costs.

Later, if the market moves differently, you might realise that not changing the allocation would have been a better decision.

Now you have two things to track:

• What would have happened if you followed the AI advice
• What would have happened if you ignored it

AI can give recommendations, but ultimately someone has to take responsibility for the decision.

That is why I believe AI will remain a tool used by fund managers rather than a replacement for them.

Human Judgment Still Matters

Deepak Shenoy: At some point, investors want accountability.

If a fund manager makes a decision and it goes wrong, you can question that decision. But if AI makes a recommendation, you cannot really hold it accountable.

In times of crisis especially, people still want human judgment.

So AI will help investors and fund managers process data more efficiently, but it will not replace the role of decision-makers entirely.

AI and Financial Decision Making

Deepak Shenoy: Let me give you an example.

Suppose you need money for three months and you hold mutual fund investments that have appreciated significantly. AI might recommend selling certain units in a tax-efficient way.

But there could be another solution: take a loan against your mutual fund holdings instead of selling them.

By doing this, you avoid capital gains tax and repay the loan later when your income arrives.

AI may not always consider such contextual decisions unless it has been specifically trained to do so.

This shows that AI often answers the exact question you ask, but it may not think outside the frame of that question.

AI, Jobs and Technological Change

Vivek Ananth: There is also a lot of concern about AI replacing jobs. Do you think these fears are justified?

Deepak Shenoy: Historically, technology has always replaced certain tasks but also created new opportunities.

Take the example of STD booths or public phone centres in India. Twenty years ago people had to stand in line to make calls.

Today those businesses have disappeared because mobile phones became universal.

But that did not mean people stopped working. Instead, new industries and roles emerged.

Technology increases productivity, and higher productivity often leads to new economic activity.

AI and India’s IT Services Industry

Vivek Ananth: There is also concern that AI could disrupt India’s IT services industry, which generates hundreds of billions in exports. Do you see that risk?

Deepak Shenoy: I do not think the situation is as negative as some people suggest. In fact, AI tools may increase demand for skilled engineers who can implement and customise these technologies.

Companies still need people to build infrastructure, create AI agents, integrate systems and manage data. Many global companies will continue outsourcing these tasks because it is cheaper and more efficient.

India has a huge talent base, so we will likely remain competitive in this space.

Why Diversification Is Hard for Investors

Deepak Shenoy: One reason diversification is difficult is psychological. People naturally want to bet on one winning idea.

When investors ask for stock advice, they usually ask:
“What is the best stock to buy?”

They rarely ask for twenty stocks to build a diversified portfolio.

Human behaviour is biased toward concentration because it feels more exciting.

Diversification requires consciously going against that instinct.

Lessons for Young Investors in Uncertain Times

Vivek Ananth: For younger investors today, the global environment feels very uncertain. There are wars, geopolitical tensions and inflation concerns. How should someone in their twenties think about investing?

Deepak Shenoy: Every generation believes it is facing the most uncertain period in history. But if you look back, there have always been geopolitical crises.

Over the past decades we have seen:

• Gulf wars
• The Kargil conflict
• 9/11
• Wars in Afghanistan and Iraq
• Brexit
• The Russia-Ukraine conflict

Despite all of this, global economies and markets have continued to grow over time.

So, for young investors, the most important thing is discipline.

If you are earning regularly, continue your SIP investments. Do not try to time the market based on news headlines.

Building Financial Stability Before Chasing Returns

Deepak Shenoy:
In the early years of your career, your savings are small relative to your future earning potential. At that stage, the difference between perfect and imperfect investment decisions is relatively small.

Focus first on building financial hygiene:

• Maintain an emergency fund of six to eight months of expenses
• Ensure you have health insurance and life insurance
• Continue systematic investing

Only when your savings become large relative to your income do short-term market fluctuations start to matter more.

Growth vs Value Investing in an AI-Driven Economy

Vivek Ananth: Do you think AI will change the definition of growth sectors or value investing?

Deepak Shenoy: AI will affect industries differently. Some sectors may see large productivity improvements, while others may not change much.

For example:

• Trades like plumbing or carpentry are unlikely to be replaced by AI anytime soon.
• But AI may help these professionals design better products or improve efficiency.

Ultimately, the companies that succeed will be those that adapt to change.

Growth and value are not static categories. They are outcomes of how companies respond to new technologies and evolving markets.

The Risk of Ignoring Technological Change

Deepak Shenoy: History offers many examples of companies that failed to adapt. Kodak dominated film photography but underestimated the shift toward digital cameras. Technology did not destroy Kodak. Kodak destroyed itself by failing to adapt. The lesson is simple: if companies do not disrupt their own business models, someone else eventually will.

Recommended Podcasts, Books and Films

Vivek Ananth: Before we close, could you share some books, podcasts or films that have influenced your thinking?

Deepak Shenoy: There are quite a few. 

Podcasts I enjoy include:

• Odd Lots by Bloomberg
• Money Stuff by Matt Levine
• Acquired, which explores the history of major companies

In terms of films, I like Trading Places, which shows that great traders can come from anywhere.

Another film I often mention is Ratatouille. One of its most memorable lines is:

“Anyone can cook.”

The meaning is that talent and passion can come from unexpected places.

The same idea applies to investing and entrepreneurship.

Closing Thoughts

Vivek Ananth: Thank you so much, Deepak, for joining us and sharing your insights on asset allocation, AI disruption, diversification and the evolving investment landscape.

Deepak Shenoy: Thank you. It was a pleasure.

Vivek Ananth: And to our listeners, stay informed, stay curious and keep investing wisely. Until next time, goodbye.

Disclaimer: Investments in securities markets are subject to market risks. Please read all related documents carefully before investing.