In this chat, he lays out his preference for consumer discretionary, industrials and financials. Edited excerpts from a chat:
Markets have seen a strong run in the last 3-4 months. Do you believe we are entering overvaluation territory, especially in mid and small caps?
Indeed, markets have rallied in the past 3 months. However if one takes a broader view of the various market caps, midcaps and small caps have taken a breather for the last 12 months and undergone time correction. Secondly, Q4FY25 has been the 2nd consecutive quarter where mid-caps and small caps have delivered better than expectations in terms of fundamental performance. Finally, the overall valuations premium which these companies were getting have undergone correction though they have not become cheap. If we take stock of these changes, we believe midcaps and small cap companies may offer better growth than large cap companies at now corrected valuations which are making us positive on mid and small cap category from here on. Our current view is positive on large cap, mid cap and small cap categories.Amid strong macro data points and RBI bazooka, how do you see the market trajectory shaping up over the next couple of quarters?
Projecting short term is always tricky. If we consider what has transpired since the Budget, tax benefits and reduction in interest rate trajectory should add a significant disposable corpus in the hands of the middle class. Whichever way this money gets spent, either it will end up in consumption or investments leading to better prospects for the economy. Government spending should be elevated considering its push for infra as well as now changed prospects for defence spending over FY26/27. Overall tariff uncertainty should subside over a period of time and should provide us clear direction on exports growth over time. As it has been well understood that India is one of the bright spots on the global economic and investment horizon, we believe, backed by fundamentals and favourable flows due to India’s positioning, markets are poised for a next positive trigger to unlock value.
How was the Q4 earnings season? Did corporate results align with market optimism?
The Q4FY25 earning season was better than expectations. However, one should note that expectations were quite muted thanks to long drawn slowdown in consumption and limited pick up in capital expenditure spending. The market did not yet see true animal spirits on capex announcements. Considering uncertainty on geopolitics and tariff, markets may have to be patient and wait for 2-4 quarters before we see continuation of capex announcements gathering momentum to align with market optimism.
Have you made any significant shifts in your fund positioning recently? What are you overweight or underweight on today?
We have observed that once uncertainty subsides, market participants focus on earnings growth and quality of companies business. We believe if these companies are bought at a reasonable price, they have the potential to deliver superior returns to investors over time. Hence, currently we are focusing on companies with domestic businesses and clear growth prospects. In our view, such companies are available in financials, consumer discretionary, industrial and defence space. Many of these companies might be of strategic importance where we believe the government would be keen to protect these companies in unforeseen circumstances. Considering the spending: we are positive on consumer discretionary, industrials and financials. We are underweight on consumer staples, IT and energy.
Are you holding higher cash levels as a tactical call or staying fully invested?
We do not take cash calls in our open-ended schemes; we remain fully invested in funds due to our constructive view on the markets. The situation however remains dynamic due to current short-term uncertainty in geopolitics and tariffs.
Are there any sectors you are cautious on, either due to stretched valuations or macro headwinds?
We are quite cautious on narrative focused sectors which have delivered disproportionate returns and are not backed by robust fundamentals. Such sectors/themes are reminders for investors that equity is a risky asset class with non-linear return profile. There are pockets of these companies in sectors like industrials, exports space which have run ahead of fundamentals and may see time/price correction.
How do you approach asset allocation in times like these? If you have Rs 10 lakh to invest, how would you divide it in between stocks, debt and gold/silver.
Investors are offered 2 key asset classes by markets: 1) Efficiency assets class like fixed income, stocks which derive its worth from underlying cash flows and 2) Scarcity assets class like gold, silver, rare coins etc which derive its worth from demand and supply of these assets. Since these assets derive their value from various factors, they typically have negative correlation in their return performance. We believe investors may take benefit of this characteristic and construct a robust portfolio for long term investment goals. Our current preference is: 1) 20-25% allocation to bullion assets like gold and silver and balance can be allocated between debt and equity depending on risk appetite of the investor. If required, we recommend investors to take help of financial advisors who can guide them over a period of time. In the equity portion, we recommend entering markets over 3-6 months via systematic route due to volatility expected in the near term.
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