Naha said a 5%-7% correction in the Nifty would prompt the fund house to start looking for deployment opportunities. His preference, however, would not automatically be for large caps. If earnings growth remains attractive relative to valuations, he would look at mid- and small-cap stocks as well.
“I think we are running probably the highest level of cash that we’ve run in at least the last couple of years, between 15% to 20% across our strategies,” Naha said in an interview with CNBC-TV18.
Why is PGIM India holding cash?
Naha’s cautious stance comes from a combination of global and domestic pressures. He pointed to crude oil, inflation and movements in yields globally, while also highlighting inflationary pressures across three commodity buckets that PGIM India tracks: agriculture, metals and energy.
India’s position as a consumer of energy adds to those concerns, he said.
For Naha, the high cash position is therefore less about making a broad call on equities and more about having capital available if valuations become more attractive.
What would make the market attractive?
Naha’s key trigger is a 5%-7% correction in the Nifty. Importantly, he was not forecasting that the index would necessarily fall by that amount. Instead, he said that such a decline would make him start looking for opportunities.
“We are very clear. Any correction between 5% to 7%, we’ll start going ahead and we’ll start looking at deployments,” Naha said.
He expects weakness in the headline index to spill over into mid- and small-caps, potentially creating opportunities to build portfolios with a longer-term view.
Why does Naha prefer mid- and small-caps?
The answer lies in how PGIM India assesses valuations against earnings growth.
Naha said the fund house follows a bottom-up approach and uses the PEG ratio — price-to-earnings divided by earnings growth — as one of the parameters in deciding where to invest.
In other words, a fall in share prices would not by itself make a stock attractive. The underlying earnings growth would also have to justify the valuation.
“If the earnings growth stacks out well, even in a 5% correction in the mid- and small-cap space, we would definitely want to venture out there,” he said.
This is why Naha’s preference for mid- and small-caps is conditional rather than a blanket call on the segment.
Where does he see opportunities?
Capital goods is one of the areas that fits this approach. Naha said some capital goods companies could be down 30%-35% from their peaks after a broader market correction, while he believes the sector’s cycle is only beginning.
Within the segment, he highlighted electronic manufacturing services (EMS) and bearings. He also sees potential in power transmission and, on a smaller scale, pumps.
Healthcare is another area he is watching. Naha said the sector’s recent weakness could become more interesting with further declines, given what he sees as its long-term potential and low penetration in India. He also described healthcare as an “anti-recessionary” theme.
Asset management companies are another potential opportunity. Naha said valuations in the segment have corrected significantly even as earnings have improved. He sees the longer-term financialisation of savings in India as a theme that could play out over the next five to seven years.
Insurance has also moved onto his radar following weakness in the sector. Naha said PGIM India has started working on the segment from a longer-term perspective, although he does not expect it to recover immediately.
What is the broader investment approach?
Across these sectors, Naha’s approach is to look beyond short-term news when the underlying long-term story remains intact.
Negative news can create an opportunity, he said, if it affects a stock or sector without undermining its structural prospects. The focus then shifts to whether valuations have become attractive relative to the earnings growth that can still be delivered.
That is also why PGIM India’s cash position matters. Rather than deploying simply because markets have fallen, Naha wants to use the correction to reassess valuations and identify businesses where the longer-term earnings potential justifies putting capital to work.