Rajeev Thakkar, Chief Investment Officer-Equity and Director at PPFAS Mutual Fund, addressed growing investor chatter around the underperformance of the Parag Parikh Flexi Cap Fund in a note to unitholders.
Thakkar opened the note by describing recent scrutiny as driven by "noise on social media", pointing out that two years of range-bound equity markets are a "feature and not a bug" of equity investing, and not something markets are obligated to avoid.
Parag Parikh Flexi Cap Fund is the largest actively-managed equity scheme in India by assets, having become the first active fund to cross the Rs 1-trillion AUM mark in May 2025.
On absolute returns, Thakkar said the fund house had been guiding caution since the market exuberance of 2024 and was "mocked" at the time for its rising cash levels. He said the two years of time correction had thrown up more opportunities, and the outlook for returns "appears to be improving".
On relative performance, Thakkar said the current period of underperformance was "not noteworthy" in either duration or magnitude, adding he had overseen a larger drawdown in 2007 on a PMS book of just over Rs 100 crore.
A note by PPFAS' CIO explains India's biggest equity funds' underperformance.
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Cash levels, which peaked at about 25%, have come down to 14-15% in the Flexi Cap fund, he said, adding that the fund house expects to move toward single-digit cash levels "in some time". He said holding cash through the sideways market had not hurt investor returns and had helped "at the margin".
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Defending the fund's exposure to HDFC Bank, Thakkar said the issues reported at the bank did not appear to threaten its customer franchise, and that the outlook on its basket of four private banks was unchanged.
AI Worry Overblown?
Thakkar also pushed back on prevailing worries around India's lack of homegrown AI models, capital gains taxes, the Securities Transaction Tax and the rupee, calling these recurring "manic/depressive mood swings" rather than new developments.
On IT services, he said fears of AI-led job losses were "largely overblown at the aggregate level", drawing a parallel with earlier fears around bank computerisation, and said the fund house viewed the current sell-off in the sector as an opportunity rather than a threat.
On its hyperscaler holdings, Thakkar said these companies retain core businesses beyond AI and that any capex overcapacity was likely to be cyclical rather than permanent. The fund has no direct exposure to pure-play AI model companies, he said.
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On IEX, he said market-coupling concerns applied to a sub-1% portfolio position and that the view that the exchange's market share would fall to a third of the total market was "simplistic".
Citing Screener.in data as of 4 August, Thakkar wrote in his Aug. 4 note the Nifty 100 traded at a PE of 20.8, against 30.7 for the Nifty Midcap 150 and 34.6 for the Nifty Smallcap 250, and said it was not "a law of physics" that smaller companies deliver higher returns.
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