Stocks went through a sell-off phase with both the Nifty and the Sensex entering ‘correction’ territory, though last week the benchmark indices rose up to 1.98 per cent. Vivek Nair of The Telegraph spoke to Hemant Shah, fund manager at Seven Islands PMS, a Sebi-registered portfolio management division of Mansi Share & Stock Advisors Pvt Ltd, to get his views on the selling pressure and the road ahead. Edited excerpts.

Stocks recently went through a correction due to both global and domestic factors. What is your outlook on the road ahead. Should investors be prepared for more negative surprises and volatility?

The Indian stock market, like global markets, has experienced an unprecedented bull run over the last three years, largely driven by economic recovery and liquidity inflows. During this period, corrections were shallow and short-lived, often viewed as buying at dip opportunities. However, the recent correction in the month of October, with the Nifty falling approximately 10 per cent from its peak level of 26277, is the steepest in the last three years and was anticipated by many for the past 10-12 months. Hence, it is a healthy correction.

The correction has brought stock prices closer to realistic growth projections for 2025-26 compared with earlier valuations which were closer to the projections of 2026-27 profits and beyond.

The correction has made it clear that the “buy on dips” strategy may not work across the market this time. Investors must focus on sectors and stocks where valuations align with visible profitability and growth.

As a fund manager how did you navigate the turmoil? What is the composition in your flagship fund. Do you also invest in unlisted securities?

Navigating through market volatility requires a disciplined approach. One of the most effective strategies we’ve adopted is maintaining a significant cash position as a hedge. In September, we were at 20 per cent cash, and as the markets have corrected, we’ve started deploying this cash in a staggered manner over the past couple of weeks.

Our portfolio has also undergone a stress test, and we believe it has performed well. For example, while indices were down 9.5 per cent in the first week of November, our flagship fund was down only 6.7 per cent, a relative outperformance despite the weakness.

Our core strategy remains rooted in the principles of valuation, visibility, and validation. We constantly evaluate whether the valuation is justified by the company’s profitability, balance sheet, and future growth potential. If the answers are affirmative, we consider these stocks for our portfolio with a long-term perspective.

Additionally, we’ve observed that sector-wide rallies are no longer the norm; stock-specific actions are going to drive the market. As a result, we’ve tilted our portfolio towards mid-cap and small-cap companies, where we see strong growth prospects and interesting growth opportunities.

The composition of our Seven Island Multi Cap Fund as it reflects in its name itself spans across large-cap, mid-cap and small-cap companies. Historically, we aimed for a balanced allocation of 50 per cent in large caps and 50 per cent in mid and small caps. However, in the current market conditions, our portfolio composition is a little more titled towards mid and small cap than large cap.

No, we do not invest in unlisted securities, as PMS regulations restrict us from doing so.

Have the crash in stock prices affected the incremental inflows into your PMS?

Surprisingly, the recent market corrections haven’t dampened the inflows into our PMS; in fact, they’ve increased. The inquiries we received six months ago are now translating into client conversions.

Investors have become smarter, they recognise two key factors. First, this will be a challenging year where stock picking will be critical, and many believe it’s better to entrust funds to experts rather than invest directly.

Second, corrections present a good time to invest, and investors are taking advantage of this.

In the current market conditions, what are your client’s goals and investment preferences?

Our preference now is for protection and quality investments, focusing on companies that are showing strong fundamentals and future growth visibility. We’re also being upfront — if clients are not prepared to give their investments the necessary thousand days or three-year horizon, this may not be the right time for them to enter. However, for those who remain committed, we believe in delivering good returns over the long term.