Geopolitical uncertainties and a volatile global landscape are among the best times to invest

In today’s volatile global landscape, how should long-term investors adapt their planning strategies amid persistent geopolitical uncertainties?

Geopolitical uncertainties and a volatile global landscape often unsettle investors, but history shows these are among the best times to invest. Rather than becoming overly cautious, the most effective strategy is to stay anchored to the golden principles of investing—discipline, patience, and emotional control. While daily events may cause fluctuations, long-term outcomes are shaped by temperament, not reaction. Investors who remain calm, avoid impulsive decisions, and continue allocating capital wisely tend to outperform those swayed by fear. In investing, the ability to stay focused amid uncertainty is not just valuable—it’s essential. Emotional discipline is the most powerful tool an investor can possess, and in turbulent times, it often proves to be the greatest source of long-term reward.

What potential impact do you foresee the India–UK Free Trade Agreement having on the Indian economy and investor sentiment in the next 2–3 years?

The India–UK Free Trade Agreement (FTA) comes at a time when globalisation is facing headwinds, with many economies turning inward. By encouraging cross-border collaboration, the FTA helps revive the spirit of openness and specialisation—key drivers of efficiency and accessibility in global trade. For India, it offers tangible economic benefits by expanding access to the UK market in sectors like textiles, pharmaceuticals, IT, and automobiles. It also supports India’s broader transformation into a cost-effective manufacturing and technology-driven services hub. Over the next few years, the FTA is likely to strengthen economic ties and improve investor sentiment through stable, rulesbased engagement.

How do you see portfolio diversification evolving in an era where traditional asset classes often move in tandem?

Portfolio diversification has always been a core principle in investment strategy, and it remains relevant today—but with greater nuance. While traditional asset classes may appear to move in tandem during global shocks, true decoupling still exists. For instance, over the past five years, U.S. equities have rallied while China’s markets have lagged—highlighting that not all assets behave similarly. However, diversification should be thoughtful, not mechanical. As Charlie Munger once warned, indiscriminate diversification can dilute returns. If one had simply split investments between U.S. and Chinese equities, gains in one would have been offset by losses in the other. The key lies in understanding correlations, underlying fundamentals, and applying diversification meaningfully rather than for its own sake.

How important is tactical rebalancing in a long-term portfolio, and what indicators do you track for making such adjustments?

Tactical rebalancing plays a vital role in long-term portfolio management, especially when aligned with evolving market cycles and personal financial goals. It’s not about timing the market, but about recognising when certain asset classes may no longer serve your objectives as effectively. For instance, in the Indian context, one might consider trimming exposure to long-duration, rate-sensitive debt if the RBI signals limited scope for further rate cuts, as recently noted by the Governor. Likewise, rebalancing equity exposure—such as adjusting small-cap allocations—depends on both market conditions and personal timelines. Small caps may offer attractive long-term potential due to a growing investible universe and policy support for growth. However, if short-term liquidity is a priority, high valuations could pose risks. Ultimately, rebalancing should reflect a clear understanding of macroeconomic indicators, interest rate trends, and your own financial horizon—ensuring the portfolio remains responsive but grounded in long-term discipline.

With rising interest in mid- and small-cap stocks, what cautionary advice would you offer to investors looking to tap into these segments?

Investors eyeing mid- and small-cap stocks should keep in mind that these segments come with higher return potential—but also significantly higher volatility. Small and mid-cap funds show the widest deviation from mean returns among equity categories. For investors with a longer time horizon and appetite for short-term fluctuations, these can be rewarding choices. While valuations remain slightly above historical averages, they’ve corrected from the peaks seen in September 2024. The small-cap universe is especially attractive due to its sheer breadth—far beyond the 250 or so companies in the index—offering opportunities that aren’t always reflected in headline valuations. In contrast, mid-caps may be more constrained by an overvalued index. Given the current pro-growth stance of the government and RBI, a selective allocation to small caps could be timely, provided it's done with careful strategy and risk awareness.

In your view, what are the key risks that investors often overlook in today's highvaluation market environment — and how does Arunasset help clients navigate these challenges with a disciplined, research-driven approach?

In today’s high-valuation market, one of the biggest risks investors often overlook is the lure of momentum. What’s popular isn’t always what’s prudent. Chasing trends can lead to buying overpriced assets—much like internet stocks in USA in the late 1990s or infrastructure names during India’s 2004–07 rally—both of which ended poorly for investors. At Arunasset, we focus on aligning market cycles with client needs, not market noise. Our approach is research-driven and deeply rooted in understanding when and where true value lies. We believe that once investments are made with this alignment, volatility becomes something to endure—not a trigger for permanent capital loss. We hand-hold clients through cycles, helping them make rational, temperament-driven decisions. Good investing isn’t just about data—it’s about emotional discipline. By ensuring your liquidity needs are met, downside is protected, and long-term goals are respected, Arunasset helps you stay invested with clarity and conviction, even in uncertain times.

Which sectors do you believe are best positioned to withstand current market volatility and deliver long-term value — and how is Arunasset aligning its strategies to capture these opportunities for its clients?

In the current environment, we see selective opportunities in domestic consumption and pharmaceuticals. India’s strong high-frequency indicators and status as the world’s fastest-growing major economy make consumption-oriented businesses attractive. In pharma, several companies are trading at compelling valuations with promising near-term outlooks. More broadly, the market is transitioning from a macro-driven rally to a stock picker’s phase. Correlation across sectors has been unusually high, but we may be nearing a turning point where company-specific fundamentals begin to dominate. In this scenario, products that follow a bottom-up approach—such as focused mutual funds and other concentrated strategies—are well-positioned. Arunasset favours these vehicles for their ability to take high-conviction positions in fundamentally strong businesses. Our strategy remains sector-agnostic but research-driven, prioritising quality, value, and alignment with long-term client goals. This approach helps navigate volatility while aiming for sustainable, differentiated returns.

EoM.