Volatility to continue; margin of safety higher in large caps: ICICI Pru fund manager

The Indian equity markets have hit a rough patch, with the Sensex shedding nearly 11 per cent in the last four months. According to Ihab Dalwai, Fund Manager at ICICI Prudential Mutual Fund, market turbulence isn't going anywhere, given India's lofty valuations and global uncertainties. Overseeing assets worth over Rs 1.36 lakh crore across four funds, including the four-star rated Infrastructure Fund and Large & Mid Cap Fund, Dalwai hunts for opportunities in "segments experiencing temporary stress", emphasising his countercyclical approach. In this interview, Dalwai explains why quality stocks present attractive entry points after their recent underperformance and shares his perspective on tactical asset allocation in volatile markets. Below is the edited transcript of our discussion. Given the current market landscape, do you expect the ongoing volatility to subside soon, or should investors brace for extended fluctuations? It's crucial for us first to understand the underlying cause of this volatility. I believe it's primarily due to the macroeconomic factors or possibly the administrative changes in the US. So, I think volatility will persist until all these issues are resolved. Secondly, we must also look at the valuations of the Indian equity markets, especially in the mid- and small-cap segments. In brief, the volatility will likely continue due to the relatively higher valuations of the Indian market and global uncertainty from macroeconomic and administrative changes. What key factors or catalysts do you believe will drive a recovery in the Indian equity markets in the coming months? One of the key drivers of market recovery is earnings. During the post-Covid-19 period, we witnessed a robust recovery in earnings, leading to increased investor confidence and optimism. But in the last two quarters, we have seen certain misses in earnings. The market's expectations exceeded the actual earnings delivery, leading to a recent decline in investor sentiment. So, as a result, we're seeing some market corrections currently, primarily driven by the earnings mis