'Earnings visibility is the only margin of safety'

Summary: Large caps near Covid levels. Mid and small caps still not fully there. And a fund manager who thinks doubling your money in five years is a strong result, not a disappointment. Here's the reset most investors need to hear.

Summary: Large caps near Covid levels. Mid and small caps still not fully there. And a fund manager who thinks doubling your money in five years is a strong result, not a disappointment. Here's the reset most investors need to hear. After 18 months of volatile markets and tempered returns, Devender Singhal believes investors are finally seeing what a “normal” market looks like. The fund manager at Kotak Mutual Fund, who oversees six schemes with assets of nearly Rs 52,092 crore, argues that earnings visibility, not valuation comfort, is the true margin of safety in uncertain times. He has tilted portfolios towards large caps and sectors with clearer growth trajectories, while remaining anchored to Kotak’s philosophy of growth at a reasonable price. In this conversation, Singhal explains why value investing rarely works in isolation, how opportunities are emerging selectively across market caps, and why investors must reset return expectations and stay invested through cycles. In volatile markets like the one we are currently in, how are you structuring your flagship multi-cap portfolio? Are you looking at a massive restructuring? Volatility has been in the market since September 2024, when markets went down sharply. Then, post-March 2025, we saw a relief rally too. And since then, the market has generally been on a downward trend. The velocity on the downside has actually accelerated since February this year, when the US-Iran crisis surfaced. Right now, we have been positioning our portfolios more towards large caps and sectors with higher growth visibility. In this kind of market, earnings visibility is the only margin of safety you have. Obviously, there are efforts to buy stocks at reasonable prices, At Kotak, ‘growth at a reasonable price’ is the mantra and the investment philosophy. So we try to do that as much as possible. Wherever we found earnings visibility to be fairly high and valuations reasonable, we have tilted up positions over the last 6-12 months. In recent times, based on what has happened in the market, particularly sharp spikes in crude oil, we have tinkered with some positions, not significantly, by getting into sectors which are more positively aligned to oil movements. So, you are restricting your positions. You are taking positions to manage risk, but are you also looking at value investing? Value investing in India does not work too much, at least not in isolation. It starts working only when the perception around those value names begins to change, either towards becoming growth stocks or when earnings growth starts accelerating. When the market starts seeing a transition from a value zone to a growth zone, that is when it plays out. We are quite cognizant of that and have learned this the hard way. So, we would prefer reasonably priced names, but growth has to be there. Even if not immediately, over the next few quarters, earnings for those names should pick up. In our earlier interaction, you mentioned that mid- and small-cap valuations were elevated but justified by earnings growth over a 3-5-year horizon. Since then, we’ve seen a meaningful