Neil Parag Parikh, Chairman & CEO, PPFAS MF, says “expectations are quite high among investors. In the last two or three years, we have got almost 20% returns from the market and people think that that is probably going to be the way forward. But the communication from our side is to temper down the expectations. It is great that we got these returns in the past but going into the future, these might be a little muted as we know equity markets do not go in a straight line and there are always ups and downs. So, one should be ready for not such great returns going forward. So temper your expectation is the main communication here.”

I would not talk about the day-to-day market with you but I want to talk about you know how the investor behaviour is right now. Your house is considered as one of the most conservative houses. What sort of interactions are you having with clients? I am sure a big addition must have happened post Covid. What are your thoughts on that?
Neil Parag Parikh: Clearly there has been some maturity in the Indian investors in terms of investing for long-term goals and the SIPs as a way of doing that. That discipline of SIPs is definitely coming in over the last five years. You mentioned Covid. I think people have had a good experience over the last five years in SIPs. So the people who stuck with their SIPs have seen a great performance.

The SIP culture is going strong. There is a lot of sticky money there, I do not see that churning too much. On the other hand, expectations are quite high among investors. In the last two or three years, we have got almost 20% returns from the market and people think that that is probably going to be the way forward. But the communication from our side is to temper down the expectations. It is great that we got these returns in the past but going into the future, these might be a little muted as we know equity markets do not go in a straight line and there are always ups and downs. So, one should be ready for not such great returns going forward. So temper your expectation is the main communication here.

You have seen cycles, your team is a very admired one. We are also heading into a very important event – the elections. How does that play as an overall factor?
Neil Parag Parikh: Election is just an event. We do not pay too much attention to that and so the things that are important to us are the business quality, the management quality, and on top of that, valuations have to be attractive to invest in that particular script so that is what we are focused on. We have seen in the past that as elections come and go there can be some volatility for those days ahead. In fact, that could give some buying opportunity. But other than that, it is just an event that will come and go. So we do not put too much emphasis on an election year, we continue our process the way it is. That has worked for us for 20 odd years. I do not think we will be changing that anytime soon.

Is there a risk in the market in the sense that bulk of the investors are bull-run investors or may have accelerated their journey in the last three-four years? Will this money flow which is coming in, will be sticky? The adage is that when the correction comes, people will run away. Do you think the maturity has come to buy the dips?
Neil Parag Parikh: A common theme today is buy the dip. I think over the last 10 years, the new investors have not seen a elongated bear market or a time correction as such even in COVID the markets went down and quickly recovered and people think that that is the norm and when the markets go down, you buy the dip.

I fear that a lot of the younger investors have not seen severe bear markets or markets where the stocks do not move at all in time correction. That will be a big test for investors if we ever go through that phase. We have not gone through that phase in the last 10 years. Once we go through that phase, I do not think a lot of that money will be sticky, there will be some money that is very fickle and hot that will probably not see the day.How are your positions in overseas markets panning out? Now the narrative is coming that the US market in particular has become very narrow. In fact 40% of the global market cap is US now and within the US, it is the magnificent seven which are gaining. Do you have any observations on the American market?
Neil Parag Parikh: Obviously we have investments in Alphabet which is the parent of Google, Facebook, Microsoft and Amazon; these are the four stocks we have got in our portfolio. If the foreign limits were open and if we had a chance to buy these stocks, we probably would be buyers of these stocks right now. Long-term trends are very much in favour of these companies in terms of cloud computing or artificial intelligence or just generally the digitalisation. These companies are at the forefront of innovations. Also they are quite attractively priced and are not overly expensive. Some of these companies are at sub 30 price to earnings multiple so yes, if we had the chance we would probably be buyers still in these companies.

But are you seeing signs of froth in any part of the market or is this narrative backed by earnings? Do you have any kind of risk in the horizon which you see?
Neil Parag Parikh: We have said it for long that in the small and the midcap space, some of the stocks look a little frothy and there is a lot of retail participation going on there and buying through tips and just the general stuff, not actually going deep inside the company. I fear for those kind of investors who are just buying because things are looking good and the past returns have been good without looking at any risk metric as such.

I think there is some froth in that space, on the flip side, in the largecap spaces, the private sector banks look quite attractive. So, we have a market which is a bit polarised in the way that the largecaps are trading at a discount compared to the small and midcaps. I am again not painting the whole small and midcap with the same brush. There are quality small and midcaps which will do well and they are also pretty decently priced. But there is froth in some of the names in the smallcap and midcap space.

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