What Parag Parikh understood about investing that others didn't

Indian Express

21-06-2025

I've come across this situation more than once — and perhaps you have too.
At a social gathering or a wedding, a small group begins discussing stocks. Someone says, 'I bought this stock at 200, now it is 500.' Another adds, 'I told you about it, but you did not listen.' A third one chimes in with a tip that a stock they believe is about to double next. The conversation is filled with enthusiasm, occasional regret, and a great deal of confidence. Nearly everyone has something to contribute.
Such conversations are common. It is always about chasing the next opportunity, seldom about understanding the one already taken.
This raises a broader question: if these are the kinds of discussions seen occasionally in casual settings, what do seasoned investors encounter every day?
Those who have spent decades in the markets. Those who have watched not just stock prices, but investor behaviour across cycles. People like Warren Buffett, Vijay Kedia, or R Damani. What must they have observed? What must they have understood that others could not? Because anyone can invest. But very few build a philosophy. Even fewer stick to it.
Parag Parikh was one of those few.
Parag Parikh spent years not just watching stock prices, but observing investors. As a broker in the 1980s and 90s, he dealt with all kinds of clients, from businessmen chasing the next tip, traders shaken by sudden losses, and long-term investors who got impatient halfway through the journey.
Over time, he began to see patterns and, more so, how people thought. He realised that investor behaviour, not stock selection alone, was the real driver of long-term success.
From that came five key behavioural insights — each rooted in something he saw go wrong, and each one consciously built into the investment process at PPFAS. Here's how.
Where it began: Parag Parikh must have noticed a pattern among investors that they often sold their winners too early, afraid the gains would vanish, but continued to hold on to poor performers, waiting for a recovery that might never come. People simply feared regret more than they desired rationality.
What he built from it: He built a process focused on businesses that reduce the need for emotional decisions in the first place. That meant buying strong companies at reasonable prices, ones that offered both quality and staying power. This allowed investors (and the fund) to hold through volatility without second-guessing every correction.
How PPFAS applies it: A strong example is ITC.
Between 2017 and 2020, ITC became one of the most unpopular large-cap stocks. Revenue growth was slow, the FMCG business was not scaling fast enough, and the stock remained in the Rs 180-220 range for over three years. Many investors lost patience and exited.
But PPFAS stayed invested.
Why? Because their thesis was based not on quarterly performance but on fundamentals, a debt-free balance sheet, high free cash flow, consistent dividend yield, and a dominant position in cigarettes and packaged foods. They believed value was building silently, even when the price did not reflect it.
As of 2025, ITC is up over 90% from its 2020 lows, has expanded margins in its FMCG business, and significantly increased dividend payouts.
This example shows how resisting loss aversion and trusting a business rather than reacting to market frustration can lead to long-term gains. And it is this ability to stay invested through the 'boring' phases that often separates a good process from a reactive one.
Where it began: Parag Parikh often saw investors treat different pools of money differently. A monthly SIP would be invested carefully, but a year-end bonus or a sudden windfall would be put into a high-risk small-cap stock or an IPO without much thought. People mentally separated money by source, as salary money was 'serious,' and bonus money was 'extra.' He believed this bias led to inconsistent decisions, often based on emotion, not logic.
What he built from it: To counter this, Parikh believed investors needed a single, goal-driven lens for all financial decisions. Whether it was SIP money, inheritance, or a one-time gain, it should be invested with the same level of discipline. That is also why he was against the idea of managing too many products for different moods or market cycles. He believed clarity was more valuable than variety.
How PPFAS applies it: PPFAS still operates with that same mindset. It has maintained a simple, focused product lineup, comprising just one core equity fund that is the Parag Parikh Flexi Cap Fund, along with a tax-saving version (ELSS) of the same strategy. While it also offers an arbitrage fund, that is not positioned or managed as an equity fund in the traditional sense. There are no sectoral funds, no momentum strategies, and no new fund offers built around temporary themes or market cycles.
Even when investor flows surged after Covid in 2021, and other AMCs rushed to launch 30-40 new schemes across smallcaps, ESG, and global themes, PPFAS resisted. They received regular feedback from distributors and investors asking, 'Why not launch a small-cap fund?' or 'Why not ride the momentum with a new-age tech basket?'
But they chose not to. Because doing that, they believed, would give investors the illusion of choice, but encourage mental accounting that could lead to separate pots of money, each with its own logic, and ultimately, a disjointed portfolio.
Instead, PPFAS guided investors to treat their capital as one, focusing on long-term wealth creation and allocating it through a single, well-diversified fund.
A good example of how they handled inflows responsibly is from 2020 to 2021, when their AUM jumped sharply. Instead of deploying all the funds at once or chasing high-beta stocks, they remained selective, allocating gradually and sometimes even holding over 10% in cash and arbitrage positions, waiting for better valuations.
Where it began: Parag Parikh often observed that investors found it very hard to let go of losing positions. Not because the business was still strong, but because they had already invested time, money, and emotion into it. He saw this during the K-10 stock boom in the late 1990s, where people held on to crumbling companies because they had entered at a higher price and did not want to 'book a loss.'
The logic was simple: 'I have already put in so much, maybe it will bounce back.' But he believed this was one of the most damaging biases in investing. A stock does not know you own it. Your entry price does not matter to the business. Only the future does.
What he built from it: Parikh designed an investment process where each holding was reviewed continuously against its thesis, not its cost price. If a company no longer met the standards of quality, governance, or growth visibility, it had to go. No matter how popular it once was. No matter how much time it had spent in the portfolio.
He encouraged detachment, not indifference, but the ability to change your mind when facts changed.
How PPFAS applies it: A clear example is Sun Pharma.
PPFAS bought into Sun Pharma around 2018, when it was still India's leading pharma company. It had acquired Ranbaxy in 2015. The logic was that post-merger synergies, strong promoter pedigree, and domestic market leadership would continue to drive long-term returns.
But over time, the situation changed. Regulatory issues with the US FDA, weak integration outcomes, and a decline in profitability raised red flags. The company was still well known, but its outlook became murky. Instead of holding on just because it was once a blue-chip name or because the fund had a large allocation, PPFAS trimmed its exposure significantly between 2023 and 2024.
That was a classic implementation of Parikh's thinking. The question was not, 'Will it come back to our cost?' The question was, 'Does it deserve our capital going forward?'
By focusing on future relevance rather than past commitment, the fund avoided getting trapped.
Where it began: Parag Parikh had seen what happens when too many people chase the same idea. During the Harshad Mehta rally in 1992, he watched clients pour into stocks they barely understood, simply because everyone else was buying. The same thing happened again in the dot-com boom of 1999-2000 and the real estate-led rally of 2007-2008.
Each time, the early gains drew more people in, and the fear of missing out replaced careful thinking. Parikh realised that when a stock or sector becomes too popular, the risk does not reduce; it multiplies silently. Everyone cannot exit at the same time.
What he built from it: He built a deep resistance to consensus thinking. If everyone loved a stock, he asked why. If everyone were ignoring a sector, he became curious. He taught that investing is not about copying, it is about thinking independently.
How PPFAS applies it: A strong example is PPFAS's decision to stay away from hyped IPOs and trending new-age businesses.
In 2021, when the Indian IPO market saw a flood of digital-first companies, many mutual funds rushed to participate. These stocks were seen as the next frontier, priced aggressively, and backed by global capital. But PPFAS did not invest in any of them at the time of listing.
Their reason was clear: most of these companies had weak profitability, unclear moats, and lacked a clear timeline to self-sustaining cash flows. It did not matter that they were trending. What mattered was that the valuation did not match the business model.
By 2023, many of those names corrected sharply, some by over 40-60% from their IPO highs.
Instead, PPFAS kept adding to companies like Bajaj Holdings, ICICI Bank, and Cognizant, none of which were popular at that time, but all had clean balance sheets, steady cash generation, and long-term potential. Their conviction was not driven by market sentiment, but by bottom-up research.
Even globally, they added Amazon and Meta during periods when those stocks were under pressure, post-2022 correction, citing strong fundamentals and future earnings power, even though market opinion was still cautious.
Herd behaviour also works in reverse. During pessimistic phases such as March 2020 or the early 2023 correction in US tech, PPFAS was willing to go against the prevailing mood and increase allocations in fundamentally sound but temporarily unloved names.
In short, they continue to ask: Is this idea good? Or is it just popular? And that one question keeps them from making the same mistakes the crowd makes, just a little later.
Where it began: Parag Parikh often said that most investors want long-term wealth but follow short-term behaviour. He saw it firsthand as clients who bought with a five-year view but sold in five weeks. The slightest correction, a missed quarterly estimate, or a new tip from a friend would trigger panic or FOMO. He realised that while the market offers daily prices, wealth is built over the years.
This was one of his most fundamental beliefs: you cannot compound if you keep interrupting the process.
What he built from it: He built a structure where patience is baked into the system. He believed in buying a business only if you were comfortable holding it through multiple cycles. This meant the portfolio had to be simple, conviction-led, and resistant to noise.
He also believed in educating investors to align with this philosophy, which is why even today, PPFAS actively tells potential investors: If you cannot stay for five years, please do not invest.
How PPFAS applies it: This thinking shows up in two clear ways: portfolio design and investor communication.
On portfolio design:
PPFAS maintains one of the lowest portfolio turnover ratios in the industry, consistently under 10%. That means they rarely sell just because a stock has moved. For comparison, most active equity funds in India have turnover ratios above 60-70%, which indicates more frequent buying and selling.
Some examples of their long-held positions:
ITC stayed in the portfolio even when it underperformed for nearly five years. Today, it is one of the fund's top performers.
Nestlé India, HDFC Ltd., and Bajaj Holdings have remained core holdings for 5-8 years through multiple market cycles.
On the global side, Alphabet (Google) and Amazon have been held through periods of extreme volatility, including the tech correction of 2022, with no panic selling.
Their approach is clear: if the business fundamentals are intact, temporary price moves are not a reason to act. The decision to hold is based on the company's ability to grow free cash flow, expand margins, and reinvest capital effectively, not on short-term market opinion.
On investor communication:
Every year, they hold an annual unitholder meeting, where the CIO and fund managers openly answer questions, share what is working and what is not, and urge investors to stay the course.
During the Covid crash in March 2020, PPFAS published detailed letters explaining why they were not making major changes. They did not reshuffle portfolios. They waited, trusted their holdings, and within 12-18 months, the fund had sharply outperformed peers who overreacted.
Even as of 2024, the fund has told new investors clearly: This is not a fund built for quarterly comparisons or tactical moves. It is built for compounding.
Parag Parikh observed how people behaved with money and the decisions they repeated, the habits that shaped outcomes, and turned those insights into a way of investing that focused on quality, patience, and clarity.
That approach became a part of how the fund operates even today. PPFAS continues to invest with the same mindset, thoughtful stock selection, low churn, and a deep respect for long-term discipline.
This article is not meant to promote the fund. It is simply an attempt to understand how a clear way of thinking has been carried forward. The philosophy that Parag Parikh practised and passed on still offers something useful to every investor.
It shows that when you give decisions enough thought, when you stay with businesses you understand, and when you trust time to do its work, investing becomes a lot steadier.
Note: We have relied on data from the annual reports throughout this article. For forecasting, we have used our assumptions.
Parth Parikh currently heads the growth and content vertical at Finsire. He holds an FRM Charter along with an MBA in Finance from Narsee Monjee Institute of Management Studies.
Disclosure: The writer and his dependents do not hold the stocks discussed in this article.
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