Fund managers who were bullish on segments that were in vogue will recalibrate their portfolios: Prashant Khemka

Khemka pointed out that sectors like FMCG and pharmaceuticals tend to perform well in volatile markets but cautioned against expecting a clear momentum.

In light of sharp market crash on June 4 after Congress-led India Alliances strong performance in the general elections, fund managers who have been bullish on segments that were in vogue may need to recalibrate their portfolios, says Prashant Khemka, the founder and managing director of WhiteOak Capital Management.

During an interview with Moneycontrol, discussing market volatility and the possible outcome of elections, Khemka highlighted that fund managers might shift their strategies given the current market uncertainties.

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At the close, the Nifty and Sensex each plummeted around 6 percent as panicked bulls rushed to exit their positions. However, the most significant damage was seen in the favored PSU stocks, with some experiencing intra-day drops of up to 25 percent.

Khemka also acknowledged the market's extreme volatility, attributing it to the fluctuating indications of the seat count and the divergence between exit polls and actual results. Despite this volatility, the market veteran remains hopeful that formation of a stable government over the next few days should regain some normalcy in the market.

Read more: Despite current volatility, India remains a long-term destination says Kotak's Nilesh Shah

"The markets, which have been expecting continuity of policies on the back of continuity of the government, would face a shock if a weak coalition government of a different dispensation were to come into power," Khemka explained. He noted that if such a scenario materializes, it could lead to a significant market downturn, potentially in the 25-35 percent range. However, he was quick to point out that current numbers suggest a stable government, making such a downturn less likely.

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Focusing on fund managers' strategies, Khemka observed that those who were heavily invested in high-momentum sectors over the past few months or years might need to reassess their positions. "Fund managers who are very extended in those segments of the market, heavily invested in those segments, will certainly recalibrate," he said.

Retail investors, too, might need to rethink their strategies. Many who entered the market over the last few years have predominantly invested in high-momentum stocks.

When asked about potential shifts in market momentum, Khemka was cautious. He acknowledged that while there might be recalibration in sectors such as capital goods, infrastructure, and real estate, it is challenging to predict where the next strong momentum will arise. He pointed out that sectors like FMCG and pharmaceuticals tend to perform well in volatile markets but cautioned against expecting a clear momentum.

On the topic of foreign investor perception, Khemka noted that the day's market decline might prompt some foreign investors to re-evaluate their positions. "Compared to yesterday, it is reasonable to assume that foreign investors now would be more of a mixed bag," he said. While some may see the current situation as an opportunity, others might adopt a wait-and-see approach.

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