Prashant Khemka, Founder, White Oak Capital Management, says market uncertainty is a constant, with major events overshadowing the frequent fluctuations. The advice is to remain fully invested and avoid frequent portfolio churning based on news, as this primarily benefits brokers. A balanced portfolio with a mix of domestic and export-oriented names across various sectors like IT, pharma, and chemicals is recommended to outperform the market.
50% tariff announcement on India. How do you believe the investors will take it? Is it going to be just a knee-jerk reaction in the market and are the markets likely to stabilise going ahead?
Prashant Khemka: In my assessment, despite the market reaction of the last few days, the base case expectation is that these are not the final tariffs. It is more of a negotiating tactic. Donald Trump is negotiating on two fronts with Russia over the Ukraine war and with India on the trade talks. So, he is using the same arrow to hit two targets. Using some leverage from this for the Russia-Ukraine war as well. His behaviour has been quite predictable. In the past also, if you see, whenever the negotiations come to final stages, he just ramps up what is at stake and then he has no ego or problem in backing down. I hope and I assume that is the base case here as well.
He has given 3 weeks, for the 21 days before this, extra 25% becomes applicable, and that also is an indication in my view that between now and then, we should see some further developments that would result in final tariffs that are well below the announced 25 plus 25. Having said that, there is some uncertainty and that is what the market is reflecting right now.
I agree with your take on how we still have a little bit of a time before these tariffs come into play and there is more room for negotiation given the fact that we have a US delegation visiting India later this month. What could these negotiations look like because when the first round of 25% tariffs was announced, we were operating with the assumption that this is the worst and things could progressively get better from here in terms of negotiation. On the other hand, there are Trump's comments on Japan where he is threatening to increase their tariffs. So, this can pan out either way. Where are we headed in terms of the next three weeks?
Prashant Khemka: As you said, it can pan out either way. But from here on, going by the pattern in the past that Trump has exhibited, it seems more reasonable to assume that we would settle back somewhere below what he had originally announced which was 25%. Originally meaning, a week ago or so, he announced 25%. I doubt it would settle anywhere near at 50%. Though between now and three weeks’ time, he might even ratchet up further pressure.
But the way the negotiating team is responding with patience and keeping our interests at the forefront because even if you agree to something, let us say, we signed a deal a few months back, there is nothing to say that he would not on top of that come out with further tariffs. We could have agreed a few months ago and he could have still slapped additional tariffs for buying Russian oil. He has done this with other countries with none other than Canada itself adding additional tariffs at a at a later point in time.
We have to give some more time and get used to some of this uncertainty. It is not easy. Obviously, the market can get used to it, but it is not easy on the individual sectors where it impacts the most. But that is the way the last few months have been and possibly for some time it could remain this way.
As an investor, what are you advising to your client or rather as a manager, what are you advising them to do right now? Sit with whatever they have in hand, be long-term and have a constructive view on the markets or do some churning at this point in time because things are still uncertain in select sectors?
Prashant Khemka: Certainly, first of all, the market-wide level uncertainty should not be new to any investor. Whether you look at it over the last 5 years, 10 years, 20 years or longer, there has always been a great degree of uncertainty almost at all times, consistently and persistently. In the recent past, we only remember the major ones like the COVID, the Russia-Ukraine war and now the tariffs in April and so on. But between these events, there would be a great degree of uncertainty as well. It is just that you tend to not remember them at a later point in time and believe me in a few years’ time, you would not remember today. It would be lost amongst the major milestones or markers such as COVID and Russia-Ukraine war or so on and so forth. So, this kind of uncertainty is normal at all times though it seems extremely high while you are living through those periods. In terms of portfolio, we remain fully invested.
Your second question was whether we churn from one sector to another on the back of such announcements. The reality is if you were to churn every time something like this happens, I have not seen anyone who makes money doing that. Only people who make money are the brokers because they get brokerage fees in these moves but investors cannot make money churning their portfolios on such news, and certainly not fund managers. If you start churning on the basis of such news, you will completely completely drive the market against yourself with the impact cost. Even individual investors cannot make money out of such macro news.
What if tomorrow or next week or two weeks later, the tariffs are revised down to more acceptable levels and then you will have the reverse and then you will sell what you just bought today and buy the opposite. So that would not make money is our view. Stay fully invested and maintain a balanced portfolio; do not have just domestic names, do not have just export-oriented names, have a good balance. Obviously predominantly it would be domestic oriented names
because that is where bulk of the market itself is, bulk of the opportunities are, and bulk of sectors are but we have IT services sector, pharma, chemicals and some of those would be on pressure certain days while others would do well and then it would be the other way around another day. On the whole the idea is to beat the market.
Source Name : Economic Times