Sohum Asset CIO sees 3-5% more market correction, says buy the dip

Sohum Asset Managers' Founder and CIO Sanjay Parekh expects another 3-5% market correction as high crude oil prices, rupee weakness and geopolitical tensions continue to weigh on sentiment. But he says the sell-off will "throw up a phenomenal opportunity as a contra."

The firm has started advising clients to gradually accumulate quality stocks during market weakness.

Nearly $500 billion in market capitalisation has already been wiped out, he noted, adding that if crude prices remain elevated for a prolonged period, it could hurt India’s economy through higher import costs, continued rupee weakness and rising cost of capital.

To deal with this uncertainty, Sohum Asset Managers has shifted aggressively towards large-cap companies. The firm increased its large-cap allocation from 72% to 83%, focusing on market leaders that it believes can survive a difficult economic cycle better than smaller companies.

“Let's look for larger gap leaders, who are in a real dominating situation and can do better in a tough environment,” he said.

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The portfolio includes companies such as Reliance Industries, Maruti Suzuki, Mahindra and Mahindra, Bajaj Finance and Sun Pharmaceutical Industries. Parekh said this strategy helped limit losses during the recent correction. While markets fell around 9% since January, Sohum’s portfolio declined a little over 3%.

The fund manager also remains selective on sectors. He has turned positive on Waaree Energies after understanding the company’s acquisition strategy better. Parekh said the deal looked financially comfortable and did not create major balance sheet risks, prompting the fund to increase its exposure to the pharma major.

At the same time, he continues to stay cautious on IT exporters despite the rupee weakening near record lows. According to him, the bigger concern is slowing volume growth and the possibility of AI-led disruption in the sector.

“We don't want to preempt this AI-led contraction in revenues,” Parekh said while explaining why the fund remains underweight on technology stocks.

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Parekh has also started building a small position in renewable energy through Waaree Energies. While he acknowledged that the near term could remain challenging, he believes India’s renewable manufacturing opportunity remains strong over the long term, especially with government protection for domestic players.

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On mid- and small-cap stocks, Parekh said valuations remain expensive despite expectations of faster earnings growth. He believes many smaller companies are still trading at significantly higher valuations than large caps, making risk-reward less attractive in the current environment.

Even with near-term caution, Parekh believes investors should use sharp corrections to slowly build positions in strong businesses rather than panic over volatility.

Disclaimer: This article is for informational purposes only and should not be construed as investment advice. Readers should consult certified experts before making any investment decisions.

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