2 days ago
Home bias has most definitely strengthened, says Vinay Jaising of ASK Private Wealth
Given the geopolitical situation worldwide, home bias has most definitely strengthened for investors, according to ASK Private Wealth's Vinay Jaising.
The firm's chief investment officer and head of equity advisory explained that the geopolitical risks are best assessed through three indicators: currency movement, the volatility index or VIX, and crude prices.
The US and India VIX have dropped sharply, signalling lower perceived volatility, according to Jaising, whose firm manages assets worth more than ₹44,000 crore as of May-end. Crude oil has corrected faster than expected, benefiting India.
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The dollar index has weakened, while the rupee remains stable. Despite global headwinds, indicators like currency stability, falling crude prices, and easing volatility suggest resilience in Indian markets. Which is why, as Jaising puts it, 'India is relatively insulated".
Still, he believes in maintaining a balanced allocation.
Edited excerpts:
Where does your inclination lie in terms of market cap? Do you believe the broader market offers greater alpha potential?
Short answer: yes. When you compare 4,000 companies to just 100, the chances of finding alpha in the broader universe are naturally higher. Also, the top 100 companies are heavily researched, whereas many of the 4,000 others are under-covered. That's where you might find market leaders in niche segments that aren't large caps yet.
India's 100 largest companies are considered large-cap, but even the 400th company can be a billion-dollar business. So, should a billion-dollar company really be called a small cap? That is a key question.
For us, it is about backing market leaders or those on the path to becoming one, with strong strategies, good industry positioning, visible profitability, manageable regulatory risk, solid cash flows, and healthy return ratios. If all that aligns with our internal prescribed parameters and the valuation looks attractive, both fundamentally and quantitatively, then we are interested. If that company happens to be a small-cap, that is fine. The core question is: Will this company create value for our investors?
Small-cap stocks often come with liquidity challenges when it comes to exiting positions.
Liquidity is crucial. In a five-year bull run, everyone focuses on entry,but not many think about exit. What if you need to exit due to, say, regulatory changes or geopolitical risks affecting a specific sector? If the stock tanks while you're trying to sell?
So, it is not just about picking small-caps but also understanding liquidity within that segment. We analyze how long it takes to enter and exit a position. Since we are in the PMS (portfolio management) space, this is a constant consideration.
How do you approach exit strategies? Do you use hard stop-loss levels, maintain cash buffers, or consider options? What's your framework for managing exits, especially in volatile or illiquid scenarios?
When we enter a stock, it is not just based on quant or fundamental views; we also assess the company's long-term potential. We build a model that we understand and assign a targeted intrinsic value based on macro and micro factors over a 1–to 5–year horizon.
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Our first exit strategy is valuation-driven. If nothing has fundamentally changed but the stock hits our target much faster than expected, say, a one-year target in a month, we may trim the position. If it grows beyond our portfolio weight limits, we also reassess. Sometimes, we fully exit if we find a better opportunity with similar fundamentals but a more attractive valuation.
However, we are also cautious not to exit too early, especially in sectors like defence or capex, where earnings potential may evolve beyond initial estimates. We constantly reassess based on updated data.
The second exit strategy is when things don't go as planned. We have stop-loss policies in place to trigger a review. That does not always mean we exit. If the thesis remains intact, we may increase our position; if not, we reduce or exit based on why it is underperforming.
Given the current geopolitical tensions, do you think home bias has strengthened? Are investors now leaning more toward domestic investments over global diversification?
Home bias has most definitely strengthened. But when we look at geopolitical risks, it is important to track three key indicators: the dollar versus the local currency, the VIX (volatility index), and crude oil prices. Interestingly, the US VIX, which had spiked to 50 just three months ago, is now below 20. In India, it has dropped from 25–30 to around 14–15, suggesting that markets don't see the current geopolitical stress as highly volatile. Crude oil, which had surged during the Iran-Israel conflict, has corrected much faster than expected—likely positive for India as a net importer. On the currency front, the dollar index (DXY) has fallen 10% from its peak, and against the euro, it's down 8–9%. The Indian rupee has remained relatively stable around 85–86, well below its earlier peak of 88.
All these indicators suggest that while global markets may be facing headwinds, India is relatively insulated. So yes, domestic investment is gaining traction, especially since India's growth is now largely internal. That said, we still believe in maintaining a balanced allocation.
You are leaning toward increasing domestic equity exposure over global. But do you expect consolidation ahead, or do you see the index moving higher from here?Some global investors have recently leaned toward US markets, but Indian small-caps have outperformed in the last three months—matched only by the Nasdaq and the 'Magnificent 7". Meanwhile, the US dollar has weakened, especially against the euro, while staying stable against the rupee, boosting India's relative appeal.
From a US investor's perspective, rising federal debt—from $23 trillion in 2019 to $36 trillion today—with $6 trillion maturing annually at higher interest costs and a $1.1 trillion interest burden, raises fiscal concerns. Slower consumption, rising tariffs, and inflation risks add to the pressure.
With the US accounting for 30% of global GDP but 50% of global market cap, the imbalance may drive investors to diversify. FIIs (foreign institutional investors) are returning to India after two years, while domestic investors have already invested $72 billion in the past year.
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That said, diversification remains key. In our portfolios, we also look at sectors like chemicals and healthcare where India is exporting to the world and could become big globally, capturing offshore opportunities. For any investor, diversification helps manage risk. But within that context, it is fair to say India domestically is looking better.
Do you see any key risks that could impact the markets, or do you believe most challenges are behind us and the outlook remains largely positive?Let me summarize India's market outlook in a few key points. First, domestic inflows are strong and here to stay. Retail investor participation has grown significantly—from ₹0.4 trillion in 2014 to nearly ₹4 trillion today, equating to 1.3% of GDP, including provident and pension fund flows. In small-caps, retail now holds around 25%, a major shift. Second, FII ownership is at a 12-year low (~16%), suggesting room for re-entry. Third, the rupee is stable, aided by a weakening dollar and relative strength in India's macro fundamentals. The India–US 10-year bond yield spread has narrowed from over 5% to ~2%, indicating a lower risk premium and capital cost for India, which is an attractive signal for FIIs.
Banking liquidity has improved from a ₹3 trillion deficit to about ₹6 trillion surplus, driven by Reserve Bank of India (RBI) actions like CRR cuts and OMOs—supporting capex, consumption, and earnings growth. Crude oil has eased to ~$70, aiding macro stability. Earnings downgrades are bottoming out, with upgrades likely soon.
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While index-level valuations may look stretched, we focus on stock-specific opportunities, where fundamentals and growth outlooks are strong. So aside from B2C (consumer-focused businesses) softness and valuations at the index level, we are constructive on the markets, with a sharper focus on individual stock selection over index direction. (CRR or cash reserve ratio is the portion of deposits banks have to park with RBI; and OMO is the purchase or sale of bonds by the central bank in the open market to manage cash in the system).
Are there any particular sectors that you would want to highlight?First, Make in India, which includes healthcare and chemicals, shows strong earnings growth visibility. Separately, the capex cycle driven by government spending also offers good earnings potential across many companies. Financials, housing finance and capital markets stand out for earnings visibility. Telecom looks promising too, with rising ARPUs (average revenue per user) in a three-player market where one player carries high debt. Despite low ARPUs, data usage is among the highest globally, supporting earnings growth. We're positive on discretionary spending in some areas, but B2C remains the biggest uncertainty.
You did not mention realty and IT. Why is that? Especially since you have exposure to real estate through cement, pipes, and even metals.
That's correct. The CapEx cycle covers both realty and infrastructure—whether you invest in real estate directly or companies involved in building it. Regarding IT, with the dollar stabilizing and the rupee firming, growth in the IT sector appears weaker than before. Our bottom-up analysis shows better earnings growth potential in other sectors.
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