Siddharth Vora banks on largecaps, avoids smallcaps amid market uncertainty

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"Valuation premiums could contract for India in the near to medium term and given that we do not have much upside room in terms of valuation left, we could be in a very narrow range market," says Siddharth Vora , PL Asset Management.I would see both of these events as a negative event in the near to medium-term for India. So, everything that worked for us whether it was falling crude, weakening DXY, FIIs coming in, China being out of the race for some time and India being in pole position in terms of global flows and global growth and India being the only geopolitically safe, secured large economy, all of these things are now unwinding in the other side.Crude is rising, dollar is strengthening again, US bond yields are rising, the US-China trade deal is not so good for India at least sentimentally and from a flows perspective, and the recent geopolitical stress has also taken out some shine from India. Valuation premiums could contract for India in the near to medium term and given that we do not have much upside room in terms of valuation left, we could be in a very narrow range market.So, it would be tough to find meaningful upside of 12%, 15%, 20% in Indian markets. There would be single-digit upside in Indian markets from here on given the way narratives have changed over the last, I would say, 10 days.Smallcap allocation is significantly underweight. We barely have any smallcap allocation. It would be under 10%, 50% to 55% is largecap, and the balance is midcaps. Our portfolios currently biased towards large and midcap. There is better valuation comfort, better resilience amidst all the chaos and chaos is the new normal in Indian markets and global markets, the way things are panning out with pandemics, wars, trade wars, lot of things are changing, so chaos is here to stay.So, we have positioned our portfolio defensively in terms of size, but aggressively in terms of sectors, that is how we have brought in the beta. We have positioned into high beta sectors like lenders, like capital market plays, like metals, some high beta domestic consumption plays, and some defence as well, that is the broad positioning of the portfolio.We also have our global exposures to it and metals to see the global rebound playing out in the markets and we have been positioned in that since roughly two, two-and-a-half months. So, hopefully that position should recover well like it is right now.And yes, I think that is the broad positioning, large and mid and balance between domestic and global plays because you cannot take either sides in a market like this where there is so much uncertainty.If I look at Indian market seven days back, we were the only large market which was growing fast, had domestic macros, which had interest rates coming down, inflation under control, zero geopolitical stress and our biggest large EM competitor which was China that had lost a major advantage. So, from a relative perspective, India was in pole position and the strongest placed global market. Now, two of the advantages that were playing for us are actually going against us and therefore, from a foreign capital flow this is not such a great moment for India at least in the near to medium term till this is discounted either with a price correction or with a time correction. We have lost pole positioning right now.I would say stay cautious, stay invested, and just position the portfolio to the current market environment. We also have meaningful allocations to defence, like 5% of our portfolio is defence, another 10% is absolutely defensive, financials within the insurance space or the regulator space. So, we have defensive positioning within aggressive sectors also and other than that having so, we have Bharti Airtel as well in our portfolio, continues to be a large and long holding for us and it has done very well in all the chaos in the market because it is neither affected by geopolitical stress nor is it affected by global tariffs.So, this is just an example not a recommendation. This is just to say that in every market condition you will find some themes and some ideas which will position well given the market circumstances. For now, a name like Bharti Airtel or HDFC Life is very well positioned despite all the global and local chaos. So, we have to find those ideas and be aware of signals turning against us, like crude, like dollar, potentially foreign inflows as well. We need to be aware, we need to be vigilant, and we need to keep realigning the portfolio to deal with the changing market conditions.So, we have exited fortunately our entire travel and tourism exposure roughly 20-25 days back and we are quite happy with that exit because valuations leave again little room for the upside and now, of course, there is a new trigger of uncertainty. We will never know when it is over. We might be on the edge for some more time. How much ever a ceasefire is announced, we have seen ceasefires being breached whether it is Israel or whether it is Russia-Ukraine ceasefires do get breached time and again. So, currently, it is probably a better space to avoid rather than hold in my opinion. But we are positioned on the discretionary side rather than the staple side, within the consumer buckets. We are liking themes like alcohol as in particular we have been well positioned there.I know the markets were doing well, but no, so we follow a quantitative model. So, when quantitative factors turn adverse, whether the value factor is turning adverse, the volatility factors turning adverse, or other sectors of stocks are showing better strength, it is a combination or interaction of multiple factors which decide which are the top stocks to be held in a given market condition. So, based on that, we have moved out of hotels and airlines.

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