History shows tariffs and trade barriers slow down growth and any slowdown globally will increase volatility in stock prices around the world, according to DSP Mutual Fund’s CEO Kalpen Parekh. He tells Ananya Grover that his advice to investors is making investing personal. Excerpts:
How do you see Monday’s market crash?
Global as well as domestic markets sharply corrected on Monday following US President Donald Trump’s tariff hikes on all the countries and some retaliations from China. This can lead to higher tariffs across the world, which in the past slowed down the global growth. In India, this uncertainty over tariffs, along with expensive valuation, resulted in the slump. It is too early to understand the second-order effects of these announcements. Markets will stay volatile and investors should react in line with their desired asset allocations.
How are you tackling the current market fall?
Stock prices fluctuate and short-term moves are difficult to predict. This uncertainty is the inherent nature of markets. We look at the big picture – in the long term, good companies and funds that invest in them tend to rise. If we try to optimise for fluctuations, we will miss long-term gains.
Most of our funds have fallen lesser than their respective categories since the September peak partly because in some funds we had 5-10% in cash and in some we had hedged our portfolio by buying put options last year when they were cheap. We have been defensive because the valuation comfort was low. We have invested more in domestic sectors like financials and insurance because that space has underperformed in the last five years that also helped us cushion the fall.
What is your view on markets after Trump’s recent announcement?
This is a once in 70-year event and it’s too early for us to visualise first and second order impact. History shows tariffs and trade barriers slow down growth. Markets are still priced for strong growth rates in India and even in the US. Any slowdown globally will increase volatility in stock prices around the world.
Was this announcement already priced in?
To some extent, this was already priced in. Part of the fact that tariffs are coming and they will lead to uncertainties in growth and trade is what the market reflected by bringing down prices. The first round of price correction has happened, the real impact of tariff in terms of profits of companies will only be seen over the next few quarters. Then the market will accordingly react, adjust, and move ahead. The impact is less in pharma, but higher in auto and ancillaries. We’ll have to wait and watch how do we negotiate trade terms and figure out the best bargains. There are many nuances and layers to unfold. We will have clarity over the next few months. Be prepared for higher uncertainty, volatility and larger opportunities.
Your views on high valuations and what is your current approach towards choosing stocks?
There are phases of a heightened uncertainty like Covid when good quality businesses were available cheap. Last year, almost all stocks were expensive. Market generally oscillates between these two. Right now, we are in the middle — valuations are slowly coming down, but the growth cycle is also moderate. Our portfolios today have large weights to banks and NBFCs, healthcare, insurance, energy and auto & ancillaries, as some of them have corrected very sharply. Now with either time or price correction, we will get into fairly-valued markets, but it’s still some time away.
Do you still see froth in the small- and mid-cap space and have you seen the change in trend in terms of flows in different schemes?
In the last one-year, large and flexi-cap funds have done better than small-and mid-cap funds, but the latter’s three- and five-year returns are superior. Very long-term returns of well managed small-and mid-cap funds are high. So, if you get the cycle right in this space and choice of companies is right, they can be very rewarding for investors. Many investors also invest in hybrid, dynamic and equity savings funds.
That is a very stable pool of capital. Our equity saving fund has only fallen half a percent in this correction and multi-asset has fallen by 3%. These investors deserve compliments because they chose conservative funds when markets rose very sharply. Of course, there are also investors who bought hot sectoral funds at the peak of their cycles, and they’ll not be happy.
