PPFAS ‘not playing T20’; holding cash to save wickets in test cricket, waiting for loose ball to hit boundary

PPFAS comments come at a time when market participants are increasingly concerned about overvaluation risks.

PPFAS Chief Investment Officer (CIO) Rajeev Thakkar has compared the fund’s strategy of holding cash reserves to playing test cricket, where patience and timing are paramount. "Not losing our wickets is more important than hitting a six. We will wait for a loose ball to try and hit a boundary rather than swing our bat at every ball that is bowled," Thakkar wrote in his annual letter to unitholders, explaining why the fund prefers to hold cash in the current high-valuation environment rather than chase every investment opportunity.

In a market grappling with high valuations, Thakkar said PPFAS’s strategy of holding cash allows the fund to deploy money when stocks trade at attractive valuations. "Investment opportunities do not come every day across all companies, and one has to wait to deploy money well," he said, adding that the fund is focused on preserving capital and seeking long-term returns.

Looking for right valuation, not timing the market

Thakkar clarified that holding cash is not about timing the market or predicting outcomes such as elections, central bank decisions, or geopolitical events. Instead, it is about waiting for the right valuation pitch to make investments. He further said that this approach aligns with PPFAS’s commitment to long-term investing rather than short-term speculation.

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"Playing test cricket means focusing on endurance and capitalising on favourable conditions rather than swinging the bat at every ball," Thakkar said. He argued that in an environment where Indian equities have been trading at stretched valuations, discipline and patience are crucial to achieving sustainable returns.

Valuation concerns keep investors on edge

Thakkar’s comments come at a time when market participants are increasingly concerned about overvaluation risks. Benchmark indices Sensex and Nifty have corrected 10 percent from their September highs, erasing nearly Rs 50 lakh crore in market capitalisation.

Recently, several market experts have flagged similar risks, warning that ignoring valuations in pursuit of returns could result in subpar outcomes. Indian equity markets have seen a significant correction in valuations recently, but concerns remain elevated.

In early October, the Nifty’s price-to-earnings (P/E) ratio stood at 25.8, far exceeding its one-year average of 21.6, prompting several analysts to raise red flags over stretched valuations. By the end of October, the Nifty P/E had cooled to 22.58 but remained above historical norms.

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Market experts, including Sahil Kapoor of DSP Mutual Fund and Dharmesh Kant of Chola Securities, cited overvaluation as a key risk amid weakening earnings in October. Meanwhile, Kotak Institutional Equities and Goldman Sachs have also pointed out the potential for further corrections or prolonged consolidation.

‘Learn from history’: Rajiv Thakkar to investors

Rajiv Thakkar also reminded investors of historical lessons, such as the dot-com bubble of the early 2000s, when even high-growth companies like Infosys delivered muted returns for investors who bought in at peak valuations. "Valuations matter," he said, pointing out that rising interest rates have made fixed-income instruments more attractive than ever in comparison to equities with inflated price-to-earnings ratios.

He urged investors to align their portfolios with long-term financial goals, and cautioned against speculative activities like futures and options trading, day trading, and IPO flipping. Instead, he advised sticking to disciplined asset allocation and avoiding the allure of quick gains.

Thakkar cited the importance of viewing equity investments as a marathon, not a sprint. "We will wait for the right pitch to play our shots," he said.

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