'Expect only 10–12% returns': PPFAS’ Rajeev Thakkar sounds caution for 2026; stays bullish on large caps

PPFAS Asset Management’s Chief Investment Officer and Director, Rajeev Thakkar, has cautioned investors against expecting the high returns the Parag Parikh Flexi Cap Fund (PPFAS) has historically delivered. Despite the fund’s robust 19% annualised returns since inception, Thakkar says investors should prepare for “low double-digit returns — around 10–12%” going forward, citing structural macroeconomic shifts and the sheer scale of the fund’s assets.

Speaking about India’s moderating inflation and interest rate environment, Thakkar noted that nominal GDP growth — a key long-term driver of equity returns — is unlikely to mimic the high-inflation decades of the past. “If India grows at around 6–6.5% real and 3–4% inflation, equity returns should logically settle near 10–12%. Investors should not expect the 19% historical CAGR to repeat,” he said.

Large-cap bias over small caps, mid caps

In recent years, PPFAS has sharply increased its allocation to large-cap stocks, a move that contrasts with the broader market’s appetite for mid- and small-cap names. Thakkar emphasised that the tilt is valuation-led, not a size constraint imposed by PPFAS’s expanding AUM of over Rs 1.2 lakh crore.

“The run-up in mid and small caps has been very steep. We don’t go in thinking about categories — we buy businesses with the right combination of management quality, balance-sheet strength and sensible valuation. The opportunities currently lie more in large caps,” he explained.

Thakkar also dismissed the “popular misconception” that smaller companies inherently deliver higher returns. “There is no law of physics that says small caps must outperform. Look at the US — almost all returns in recent years came from the top seven tech giants.”

Investing in small caps

Thakkar acknowledged that the fund’s size creates natural constraints in entering very small companies, but clarified that the team still makes selective small-cap bets. “We recently bought 8–9% of a small-cap company through a block deal. But the investable universe shrinks as corpus grows. We cannot meaningfully deploy Rs2,000–3,000 crore into tiny names without distorting prices.”

He also warned that small- and mid-cap mutual fund categories have become “victims of their own success,” receiving disproportionate inflows relative to the size of the investable universe. “Profit pools are concentrated in large companies. Spreading money equally across categories doesn’t make sense.”

On high cash in hand, Thakkar insists this is not a market-timing decision. The fund currently sits on ~24% cash. “Cash has been the best-performing ‘stock’ this past year. We buy when we find value. Whatever remains stays in money market instruments.”

Advice for investors

For India’s growing cohort of 30–35-year-old equity investors, Thakkar emphasises two principles: Stay the course, and don’t tinker with asset allocation too often.

“Equities can deliver nothing for half a decade—and then compound sharply. The biggest mistake is overreacting to short-term noise,” he said. Equally critical is maintaining an emergency buffer: “Some people go 100% into equities. That becomes a problem during events like COVID or job losses.”

Thakkar’s steady, almost Stoic clarity on markets—shaped over three decades—explains why PPFAS continues to command trust from India’s long-term investors. His 2026 message is straightforward: be realistic, stay disciplined, and let compounding do the heavy lifting.