‘Want guaranteed returns... make a Bank FD’: PPFAS’ Rajeev Thakkar on equity volatility

Investors seeking fixed-deposit-like certainty from equity investments should reconsider their expectations, according to PPFAS Asset Management Chief Investment Officer Rajeev Thakkar. He said equity returns come with volatility and that investors cannot expect the potential for higher returns without accepting periods of uncertainty and underperformance.

Equity returns vs FD-like certainty

“The only way to guarantee a bank FD return is to make a bank FD,” Thakkar said, addressing concerns over the relatively subdued performance of equities in recent times.

His comments underline the fundamental difference between fixed deposits and market-linked investments. A bank FD offers a predetermined rate of return for a specified tenure, subject to the terms of the deposit. Equity investments, in contrast, do not provide assured returns, with outcomes depending on factors including business performance, valuations, economic conditions, investor sentiment and broader market movements.

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“The precise reason why equity investments can potentially deliver higher than fixed deposit returns is the accompanying volatility,” Thakkar said.

According to him, investors need to accept this volatility as the price of pursuing higher long-term returns. Periods of market weakness, sideways movement and corrections are therefore not necessarily signs that equity investing has stopped working.

The distinction becomes particularly important when investors compare recent equity returns with fixed-deposit rates. While an FD investor knows the interest rate applicable to the deposit at the time of investment, an equity investor cannot know the eventual return in advance.

Recent underperformance

Thakkar's comments come amid scrutiny over the recent performance of the Parag Parikh Flexi Cap Fund and concerns among investors about its cash allocation, HDFC Bank exposure and positioning amid elevated valuations in some segments of the market.

He maintained that the current period of underperformance is neither unusual nor sufficient reason to change the fund's long-term investment philosophy. The fund's cash allocation, which had peaked at around 25% during the market exuberance of 2024, has fallen to around 14-15% as valuations have moderated. Thakkar expects it to decline further as more attractive opportunities emerge.

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He also rejected the view that the fund's large asset base is responsible for its recent underperformance, arguing that periods of weak performance can occur when a strategy deliberately invests in sectors and companies that are out of favour.

On HDFC Bank, PPFAS continues to maintain its position in a basket of four private-sector banks, with Thakkar saying recent issues at the lender do not resemble earlier sector-wide frauds or governance failures. The fund also continues to view the correction in IT services stocks as an opportunity, while favouring diversified technology companies over pure-play AI model developers.

Thakkar also pointed to valuation differences across market segments. As of August 4, the Nifty 100 traded at a P/E of 20.8 times, compared with 30.7 times for the Nifty Midcap 150 and 34.6 times for the Nifty Smallcap 250. PPFAS, he said, would continue to focus on valuations and risk-reward rather than simply chasing smaller companies or popular themes.

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