'Stay cautious rather than just chase India's illusory growth'

In the past month, the broader Indian equity markets have fallen by nearly 6 per cent, with the mid-cap and small-cap indices seeing a sharper decline of around 9 per cent. Despite this market correction, Raunak Onkar, Fund Manager and Head of Research at PPFAS Mutual Fund explains that although stock prices have come down from their recent highs, they still aren't priced attractively enough to warrant building new positions in the portfolio. Overseeing foreign investments, Onkar also co-manages PPFAS Flexi Cap Fund, the biggest active fund with total assets worth over Rs 87,000 crore. In this interview, he delves into how he identifies emerging market leaders, which sectors or companies look attractive in the ongoing correction, and shares advice for beginner investors. Markets are in a phase of consolidation right now. Do you think the current scenario is expected to continue? What can be triggers for potential recovery? I don't know whether the market is really consolidating because the markets have always been uncertain. Since we all read the same media—companies, financial statements, transcripts, and annual reports—we should not assume we have some predictability. So it's not like everybody else is going to have a materially different insight as to what is going to change. The most important consideration for any company we examine is whether they have the ability to withstand a global shock. For instance, consider the period of the Covid-19 pandemic, during which the severity of the crisis remained unknown. We had a lockdown in March 2020, and the markets crashed. The most important thing was whether a company would survive or not. It had nothing to do with the growth expectations of that sector or a business. What matters most is the company's ability to survive and whether it possesses sufficient cash reserves. The company's ability to absorb shocks, such as experiencing a period of low earnings for a few quarters, is crucial. When we looked at companies with strong balance sheets and cash flows, they already had this shock absorption capacity. Companies that did not borrow too much money or were not overleveraged actually benefited because they did not have to meet their interest rate commitments during that period of time. We will never know in advance what can hit us. Therefore, it's always preferable to have a margin of safety in the companies you consider, and the companies themselves should have some capacity to absorb shocks. This way, the peaks will take care of themselves, but the downturns will be much less severe. During this correction, which sectors or companies have started looking attractive? Are there any that still seem overvalued? The majority of the businesses in the country exhibit over