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“Redemptions would happen only if we see a sharp up move but right now we just need to watch for inflows rather than worrying about redemptions,” says Aashish Somaiyaa, CEO
White Oak Capital Management

I know we cannot time the market but if a bear market has just started, how long are we going to have to sustain the pain?

We have been through a fair patch of bearish sentiment but the question is whether this bearish sentiment has got to do everything within our borders or is it being imposed on us and we are being forced to empathize with the rest of the world? Where we are in our economic cycle is not comparable to where the US is or where China is and where we are in terms of our sources for inflationary pressures is also not comparable to where the rest of the world is. These are just a couple of observations.

The second important thing is all the FPI outflows that we are seeing. In my experience, after the global financial crisis (GFC), there are just three occasions when we got massive FPI inflows – one was in 2009-10, the second was post the taper tantrum in 2013 and the third time was post Covid. So whenever there is a crisis, there are huge outflows and every crisis is followed by some kind of mean reversion or some kind of normalization. A bearish sentiment is well and truly accepted. There’s no doubt about it but we need to go behind and see the causes for that and then we need to see how much we want to sympathize with it.

You have a great handle on how the retail sentiment is moving. Up until now, we have not seen large big ticket redemptions coming in but do you fear that one could see the DIIs as well pull out from the markets?

I can tell you one thing based on my observations that I do not fear any redemptions in the foreseeable future. There is a reason for this. It is not that I would take any investor or any investor sentiment for granted, but my observation is investors do not want to withdraw money when they are 10-15-20% down on their portfolio.

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The second part which is relatively good is that we have seen the markets slowly dwindle down rather than giving a big crash. Right now, if there were to be a sudden accentuated fall in the market, the first response is likely to be buying from domestic investors. Second is that if it falls and remains there, we are running the risk of inflows building away.

Right now, the market has been slowly coming down and so at every level, there is slow and steady buying. If there is a sharp fall, I would anticipate that there would be more buying. If it remains low or if it remains where it is even now for another two-three months, we are running the risk of inflows dwindling or inflows tapering off.

Your specific question was on redemption. We will get redemptions if from here, we swiftly go back to 17,500 or some such number. People generally do not want to redeem at a loss but after you have given them reasons to fear about their money, whenever the market comes back to say close to par value or comes back to previous highs, there is an instinct to take the capital and scoot. So redemptions would happen only if we see a sharp up move but right now we just need to watch for inflows rather than worrying about redemptions.

We are also seeing that investors are bracing themselves for negligible to negative returns. Influential brokerage firms are cutting down their Nifty year-end targets as well. Is that what you are doing and telling your clients that this is going to be a year of negative returns?

The point is that in any given year, the long period average is 10-12% for Sensex and Nifty and in any given year, 20% up, 20% down is par for course. The great part about 2022 is that 20% down has come already in the first half. I would stick my neck out and say that one year out, we will be in better territory and that is one thing to keep in mind.

Second is that the challenge with buy side managers or asset management companies is that we are always telling people to keep accumulating and to keep investing. I would put it this way that even if you do not listen to us during bullish times, make it a point to listen to us when things get really bad. I personally believe that right now we are getting the short end of the stick for global reasons. Because our own causes for concern are relatively transitory, I cannot say that for the US or for the rest of the world. I am looking forward to one year out rather than worrying about what is happening right now.

As you look at that one year ahead window, how are you reworking your portfolio for the next bull run?

We are not sectoral or macro or top-down investors. We at White Oak believe that our responsibility is to consistently outperform. The BSE 500 total return index is our benchmark and we think that our aim is to consistently outperform it by as high a margin as possible. From that perspective, while we do stock picking, bottom up risk control is always top down and is always relative to what the market and the benchmark is doing.

But your question is driving more in preferred areas or sectors, etc. From that perspective, I can tell you that what finds good representation in our portfolios is private sector banks. My sense is that is something which is bearing the brunt of what is happening in the market but doesn’t have much to do with fundamentals.

Second, consumer stocks have underperformed for a long time and maybe even IT. A lot of the commentary coming out of the US is that while economic conditions are not that great, but it does not necessarily impact IT spending and the strategic outlook towards IT services. So private sector banks, IT is what finds representation in the portfolio and will continue from a one-year out perspective.


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