In a market scenario marked by cautious optimism and selective buying, Siddharth Vora, Head of Investment Strategy & Fund Manager – PMS at Prabhudas Lilladher, has revealed that his investment team is holding 14-15% of their portfolio in cash to navigate what he describes as a slightly bearish undertone.
This measured approach comes as equity markets show signs of fatigue after a prolonged rally, with global uncertainties, valuation concerns, and sectoral rotations driving investor sentiment.
The Market Mood – Caution Over Euphoria
According to Siddharth Vora, while the long-term fundamentals of the Indian economy remain strong, the short-term market mood is cautious due to:
- Global macroeconomic uncertainty.
- Persistent inflation in developed markets.
- Geopolitical tensions impacting commodity prices.
- Sectoral overvaluation in pockets like midcaps and smallcaps.
Vora emphasised that the strategy of holding a sizable cash buffer gives the flexibility to deploy funds when better entry points arise, especially during sudden market corrections.
Prabhudas Lilladher PMS Strategy Snapshot
| Parameter | Current Position |
|---|---|
| Cash Holding | 14-15% |
| Equity Allocation – Large Cap | 50-55% |
| Equity Allocation – Mid Cap | 25-30% |
| Equity Allocation – Small Cap | 5-10% |
| Sector Overweight | Banking, IT, Defence |
| Sector Underweight | FMCG, Real Estate |
This allocation reflects a core defensive stance with select bets in growth-oriented sectors that offer reasonable valuations.
Why Hold Cash in a Rising Economy?
The idea of holding cash in a growth-driven economy may appear counterintuitive, but Vora points out three main reasons:
- Market Valuations Are Stretched in Certain Segments
Several smallcap and midcap stocks are trading at historic P/E ratios, making fresh entry less attractive without a correction. - Uncertainty Over Global Interest Rates
The US Federal Reserve and other central banks are yet to signal definitive rate cuts, keeping global liquidity flows unpredictable. - Flexibility During Volatility
Holding cash allows quick reallocation into quality stocks when prices fall sharply, capturing upside without chasing momentum.
Indian Market Outlook – Medium to Long Term Still Bright
While near-term caution is warranted, Vora maintains a positive medium- to long-term outlook for Indian equities, driven by:
- Strong GDP growth forecasts.
- Robust corporate earnings momentum.
- Structural reforms boosting infrastructure and manufacturing.
- Rising retail and domestic institutional investor participation.
Key Sectors Under the Spotlight
| Sector | View | Rationale |
|---|---|---|
| Banking & BFSI | Overweight | Credit growth, improving asset quality, attractive valuations. |
| IT Services | Overweight | Recovery in global demand, rupee depreciation benefits. |
| Defence | Overweight | Government push for indigenisation, large order book visibility. |
| FMCG | Underweight | Rural demand recovery slow, high input cost pressures. |
| Real Estate | Underweight | Rising interest rates impacting affordability, selective demand pockets. |
Global Factors Influencing Indian Markets
Vora noted that global market sentiment will remain a key influence in the coming quarters. Some of the major external triggers include:
- US inflation data and Federal Reserve policy stance.
- Crude oil price fluctuations amid geopolitical risks.
- Global fund flows into emerging markets.
- Currency volatility, particularly USD-INR movements.
The Role of Domestic Liquidity
One of the defining strengths of the Indian market in recent years has been strong domestic liquidity support. Mutual funds, retail investors via SIPs, and institutional investors have provided a steady flow of capital into equities, cushioning the impact of foreign portfolio investor (FPI) outflows.
However, Vora warns that over-reliance on domestic flows could lead to complacency, especially if global events trigger sharp sell-offs.
Cash Holding – A Strategic Reserve, Not an Idle Asset
Some investors assume that cash holdings reflect bearishness or lack of conviction. However, Vora stressed that cash is a strategic reserve — akin to dry powder — that can be deployed swiftly into high-conviction ideas when valuations turn favourable.
This approach has historically helped portfolio managers:
- Reduce downside risk during market turbulence.
- Improve long-term returns by entering quality names at attractive prices.
Historical Performance – Cash Holding as a Cushion
| Year | Market Trend | Avg. Cash Holding | PMS Performance vs Nifty 50 |
|---|---|---|---|
| 2020 | High Volatility (COVID crash) | 12% | Outperformed by 8% |
| 2021 | Strong Bull Market | 8% | In line with index |
| 2022 | Correction Phase | 15% | Outperformed by 6% |
| 2023 | Choppy Market | 10% | Slight outperformance |
This track record suggests that maintaining a flexible cash allocation can be an effective portfolio risk management tool.
Advice for Retail Investors in Current Market Conditions
For retail investors, Vora offers three key pieces of advice:
- Avoid Overexposure to Overvalued Segments – Stick to quality largecaps and avoid chasing speculative smallcaps.
- Maintain Liquidity – Keep a portion of the portfolio in cash or liquid funds to capitalise on sudden opportunities.
- Stay Disciplined with Asset Allocation – Do not let emotions dictate equity vs debt mix.
Conclusion – Patience Over FOMO
While many retail investors are tempted to be fully invested in equities amid India’s structural growth story, Siddharth Vora’s strategy serves as a reminder that patience and disciplined capital deployment can be equally rewarding.
By holding 14-15% in cash, his PMS is positioning for both protection and opportunity, striking a balance between participating in market upside and safeguarding against downside risks.
Disclaimer: This article is for informational purposes only and should not be construed as financial advice. Investors are advised to consult a professional financial advisor before making investment decisions.
