We are holding 14-15% in cash in this slightly bearish undertone market: Siddharth Vora
ADVERTISEMENT To start with, we have to give this recognition to the Indian markets. No matter how many global uncertainties we see, no matter how many accidents and warlike scenarios we see, Indian markets have remained resilient. At least in the longer-term picture, the undertone in the longer term for the market remains positive. How do you see the texture of domestic markets considering all of the global uncertainties and the developments going around these days?
Siddharth Vora: So, the most encouraging part about Indian markets currently is the domestic liquidity. Again, just yesterday or day before yesterday the print numbers were out for mutual fund inflows and SIP, on a monthly basis we are making record highs. So, the domestic liquidity is a very strong indicator for how the investors in India are thinking about Indian markets. Of course, globally things do not appear to be that great. FIIs are selling. The whole tariff surprise has been very negative for India. The outcomes and structure are also not going in the right direction. I think this is negotiation tactics and eventually wisdom will prevail and things will get better from here.
Disinflation is going to be the big theme for India: Sonal Varma, Nomura
Right now, it looks like short-term rally, then profit booking, again relief rally, then again correction. So, it is a very range-bound market where after every rally you will see some profit booking and after every correction you will see some value buying. So, the markets are likely to be range bound. Fresh triggers from here could be geopolitical de-escalation and the trade deal with the US. This could provide the missing triggers that India needs for a meaningful upside from here.
The data point that came out shows a lot of resilience as far as the domestic investors are concerned. We have remained resilient on geopolitical tensions, whether it is in the form of tariff or warlike situation, the strength can be seen with DII buying as well as the retail investors with the AMFI data that came out. The consumption basket is likely to do better because we are going to look at more domestic-facing sectors whether it is consumption, or industrials. You have a lot of industrials in your portfolio. Are these names going to do better?
Siddharth Vora: The domestic macros, while resilient and healthy, are less likely to be a trigger to take the markets ahead. They are more likely to be the base for the market. They are more likely to provide support and resilience to the market rather than take it ahead. We all know that in India, inflation is under control. Growth is on track. The interest rate cycle has turned favourable and domestic liquidity is strong. So, pretty much all four engines are supporting a stable domestic economy and stable domestic markets. Despite all of this on a one-month and 12-month basis, India has been the worst performing market in the world. Clearly, our global positioning is getting eroded with the tariff situation. China is getting a much more favourable treatment and India is getting a much more adverse treatment and this can be seen in the way foreign flows are evolving. In terms of sectors, yes, domestic-focused plays across industries, not necessarily consumer alone, but across industries are likely to do better. So, we have meaningfully reduced our allocation in financials. We were at 42% last month. We are down to roughly 30%. We have exited private banks a month, month-and-a-half back. Materials, whether it is cement and metals and mining, we have meaningfully scaled up to roughly 18-20% of the portfolio. In fact, we have been trimming industrials a bit down from 10% to 8%. Healthcare is the new sector, where we have started gradually building up allocations.
ADVERTISEMENT We had no allocations up till last month and over the last 20-30 days, we have increased the allocations to roughly 6%. And the other major exit has been IT. We are down to roughly 1-2% from 12% last month. So, quite a few changes in the portfolio. We also hold a cash reserve of roughly 14-15% in this choppy volatile and slightly bearish undertone market. Unlock 500+ Stock Recos on App
While we compare the benchmarks with the broader markets, I want to understand your investment strategy. If an investor has capital and is willing to park that capital, what asset classes should one eye because we are talking largely about equity markets but at the same time, when we talk about investments, should we consider all the asset classes?
Siddharth Vora: That is right. A multi-asset allocation strategy is pretty much an all-weather strategy where based on your risk profile, strategically you are diversifying across equities, debt, gold, sometimes silver and real estate as well. That is a great strategy for an all-weather low-risk moderate return investor. But coming to pure equity investors who want to not diversify those risks and therefore not diversify those returns as well, a pure equity approach is likely suited. Within a pure equity approach, heavier focus to large and midcap should be considered at this point given smallcap valuations are still very expensive compared to largecaps.
ADVERTISEMENT Midcap valuations are also not cheap, but they are somewhere in the middle. So, a larger cap bias should help build resilience in the portfolio and when you talk about style, being a quant fund manager, it is not that my investment style or particular style preference matters. We rely on our quantitative models to decide which investment style to use at which part of the market cycle. Our models also decide which sectors to over allocate and under allocate to. Our models also decide which market cap group will get how much weight. So, from that perspective, over the last two years, we have seen two-three major shifts in investing style. Between June 23 to June 24, we saw value and momentum driven style approaches in our portfolio that did very well to capture the alpha on the upside because market conditions were healthy.
ADVERTISEMENT Post that, so from July 24 to December 24 we saw quality and low volatility tilt in our portfolio that helped us maintain alpha, protect capital draw downs, and sort of balance the portfolio in a sideways market. Post that, in the last six months, factor spreads have narrowed significantly which means all the factors are underperforming to a similar extent. There is no clear factor or style trend in India at the moment and therefore, it hints that a balanced multi-factor profile is suited in the current market environment because obviously there is a clear lack of momentum in markets, in sectors, and in factors. So, in such choppy market conditions, it is better to stay diversified across investment styles. It is better to stay diversified across market cap and not take a very polarised style or sector call in a current setup. Diversification and balance is more important than trying to get the one style right in this market environment because there is a lot of uncertainty around global cues. It is not easy to take a style call at this point of time.
ADVERTISEMENT What is your view on the pharmaceutical sector? When I say pharma sector, it is just not one sector anymore but it has been diversified into so many spaces and subsegments like healthcare, diagnostic, CDMO, and laboratory space. Trump is saying that pharma tariffs could eventually reach up to 250%. One thing is sure that uncertainty around tariffs is disincentive at least for the pharma space and any tariff for pharma will definitely hit India because 40% exports go to the US. What is your take on that?
Siddharth Vora: I would call it the healthcare sector when you talk about hospitals, pharmaceuticals, CDMO, diagnostics – the whole pack is rather classified under the healthcare segment. Within healthcare, you can have more domestic focused players and more globally exposed players as well. Our strategy is to strike a balance between globally focused and domestically focused plays simply because the kind of tariffs Trump has in mind, they are less likely to play out in the real world because it is not easy to relocate supply chains overnight with such tariffs and India being a critical supplier of so many pharmaceutical key products, I do not think it is easy for them to be replaced overnight and it is not even good for the US economy and the US consumer for such a tariff structure to play out for the critical healthcare and pharmaceutical sector.
That risk is something we should take right now when we go long healthcare against the anticipated tariffs to know that eventually wisdom will prevail and things will go back to normal. So, we are going to take a slight risk there and balance our positions between pure play domestic focused healthcare companies and a bit of globally focused or globally exposed healthcare companies who also have a larger part of their revenues coming from non-US regions, so that could be a decent strategy in terms of approaching healthcare.
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