'Investing is a marathon, not a sprint'

Summary: Dinesh Balachandran played defence for 18 months—higher cash, defensive sectors, index futures as placeholders. The market didn't reward it. He says that's fine. His reasoning for why is worth understanding before you judge the short-term numbers.

Summary: Dinesh Balachandran played defence for 18 months—higher cash, defensive sectors, index futures as placeholders. The market didn't reward it. He says that's fine. His reasoning for why is worth understanding before you judge the short-term numbers. Dinesh Balachandran thinks of investing as a marathon, and he has the credentials to pace one. Head of Investments at SBI Mutual Fund, Balachandran brings over 22 years of experience spanning two continents, beginning his career as a structured finance analyst at Fidelity in Boston before returning to India and joining SBI Funds Management in 2012. An IIT Mumbai and MIT alumnus and CFA charterholder, he manages the Contra Fund, the largest in its category by some distance, alongside multi-asset and balanced advantage strategies. In this conversation, he explains why playing defence can be the most offensive move and why investors sitting on flat SIP returns have little reason to panic. The Contra Fund’s long-term record is among the best in the business, yet the short-term picture is uncomfortable. What is driving this underperformance, and how do you see it?  You are absolutely right to highlight the contrast between short-term and long-term performance. When I think about it, at least personally, investing is a marathon, not a sprint. When you think about investing as a marathon, you encounter different phases. There will be phases where you want to go on the offensive, where you try to accelerate, take advantage of timing and perform well. And there will be phases where you need to slow down and conserve energy, because otherwise you may not reach the finish line. Similarly, in investing, market conditions are not always the same. There are phases where markets offer a wealth of opportunities, and the key question is whether you are willing to maintain an independent thought process. If yes, then opportunities are abundant and you want to take full advantage of them. If I go back a few years, say, 2020, 2021 and 2022, that was clearly a period where opportunities were plentiful, and we wanted to capitalise on them. On the other hand, if I look at 2024, particularly from the middle of the year, it felt like we were at the other end of the spectrum. Everything appeared priced to perfection. Whether large caps or small caps, there seemed to be very few attractive opportunities. In such a scenario, the natural response was to play defence. What did that mean in practice? First, we decided to maintain a much higher-than-normal cash allocation. We did not want to be forced into stock selection when we were not fully convinced, either from an earnings growth perspective or a valuation standpoint. Second, we used index futures. You can only hold so much cash, given that our framework allows a maximum of 15 per cent cash, meaning at least 85 per cent equity exposure is required. So we bought index futures as generic placeholders. The idea was that until we found individual stocks that looked attractive, we would maintain broad market exposure and wait patiently. Third, we moved towards so-called defensive sectors, which tend to hold value better during uncertain times. Historically, if you are concerned about a potential market correction, certain sectors have shown greater resilience. This was essentially our approach in the Contra Fund roughly two years ago. Looking at the last two