Markets are testing investors' patience and conviction, says Hiren Ved

It has been a slow grind to lower levels for the markets in the past few months. HIREN VED, director and chief investment officer (CIO) of Alchemy Capital Management, tells Puneet Wadhwa in an email interview that broking volumes may get impacted by market conditions, especially if volatility leads to cautious investor sentiment, resulting in lower trading activity. Edited excerpts:

 

Will it be harder for investors and fund managers to generate returns from the markets in calendar year (CY) 2025? 

CY 2025 has been tough for the broader markets so far, with volatility impacting investor sentiment. Generating returns is never easy. Given where we stand today, it may seem like a challenging year; however, the economy and corporate earnings gained momentum after a cyclical slowdown in the second and third quarters (Q3) of 2024-25 (FY25). We foresee a more constructive market environment from the first quarter of 2025-26 (FY26), and the rest of CY 2025 could turn out to be a rewarding year for equities. Mid-teen returns in CY 2025 are quite possible.

 

Should investors hike allocation to the debt segment? 

Investors should have adequate allocations to debt for any near-to-medium-term requirements, ensuring liquidity and stability in a volatile market environment. That said, the best place to be for long-term wealth creation is in equities.

 

What has been the reaction of your clients to how the markets have played out in the past few months? Is new money for investment hard to come by now? Are a bulk of your investors cashing out? 

Investors have become more mature over time and understand that markets move in cycles. However, human nature dictates a preference for upsides with minimal downside risks. While volatility can create anxiety, we see fresh monies coming in, but investors may choose to stagger their investments over some time. Despite market volatility, there are no meaningful outflows yet. This suggests that investors are willing to remain committed to their long-term goals rather than make knee-jerk reactions.

 

Can tough market conditions trigger a consolidation phase for the broking and wealth management industry over the next 12–18 months? Which ones are likely to survive this phase? 

Broking volumes may be impacted by market conditions, especially if volatility leads to cautious investor sentiment, resulting in lower trading activity. However, wealth managers play an important role in guiding clients through uncertain times, helping them diversify across asset classes, and ensuring a disciplined approach. Their need is felt more during tough and volatile markets as opposed to when markets are moving in one-way bull runs, as investors seek advice to manage risk and optimise returns.

 

Several investors who dabbled in the markets since CY 2020 were first-timers. With the recent correction eroding their gains considerably, what’s your advice on how they should approach the markets now? 

Most investors who came in CY 2020 are sitting on handsome gains. But they have never seen a greater-than-10-per cent correction until CY 2025. This will test their conviction, and those who struggle with volatility might be tempted to exit, but that isn't the right approach if they are invested in fundamentally strong stocks or well-managed funds. It may be better for them to entrust their money to a professional manager rather than navigate uncertain markets by themselves.

 

It was easy when markets were going one way and volatility was low. Now, markets are facing headwinds in the near term. Markets are currently testing investors’ patience and conviction. This is also a time when you realise that short-term trading and dabbling in derivatives may result in financial losses.

 

Have the corporate earnings troughed? 

I think Q3FY25 was the trough, and we should see an acceleration in the fourth quarter of FY25 and well into next year as government spending resumes, driving demand across sectors. The combination of tax cuts, lower interest rates, and improving liquidity should provide further support to corporate earnings. The global trade policy uncertainty may also subside in a month or two. So, I am quite confident that on a low base of FY25, FY26 earnings can revert to mid-teen growth.

 

To what extent are you using technology/algorithms (algos) in portfolio management services (PMS) at Alchemy? Has it gained industry-wide acceptance by now? 

Yes, we have one of the oldest quantitative (quant)/algo-driven PMS strategies. We now have almost four PMS strategies that run on pure quant and quant + active across market capitalisations. We invested in these capabilities way back in 2012. We are in the early stages of the evolution of quant strategies. It should gain acceptance once investors can assess how this cohort of strategies performs during a full market cycle.