The veteran investor and pioneer in the field of private equity, Ashish Dhawan, who has an eye of a keen watchdog when it comes to recognising the high quality of business, has recently taken an exit in two of his long-time favourites, triggering speculation across Dalal Street as to whether the market is in the caution stages.
Dhawan is the founder of ChrysCapital, which is one of the largest and most successful private equity firms in India and is considered to be a bellwether investor. Both institutional and retail investors are likely to show great interest in his portfolio actions since his actions are usually indicative of the overall market sentiment.
The Recent Moves
Based on recent bulk deals, Dhawan has been selling large portions of two of his long-term holdings, both of which have brought multibagger returns in the last ten years. Although the exact names have not been officially verified using the exchange filings, the market observers refer to his established preferences in the areas of education, financial services, and manufacturing, where he has, over time, accumulated significant positions.
Such sales occur when the benchmark indices are trading in record highs and various mid- and small-cap counters seem overvalued. The decision of Dhawan to reduce exposure may, thus, indicate a conservative profit-booking decision instead of a change of strategy.
Profit-Booking or Strategic Reallocation?
According to market specialists, it is more probable that Dhawan is engaging in strategic repositioning and not a panic sellout. Investors such as Ashish Dhawan act on a long-term basis. This is done by lowering the stake in over-priced parts, determined after years of compounding, not a sign of panic, but a wise exercise, said a Mumbai-based fund manager who keeps an eye on marquee investors.
As a matter of fact, Dhawan has repeatedly underlined that wealth creation sustainability relies on valuation discipline. He has, in previous interviews, cautioned against investor euphoria and risks of overlooking the quality of earnings in bull markets.
Broader Market Context
Since mid-2023, the Indian equity market has seen a sharp rally due to solid inflows within the country, good GDP growth and hope about the structural narrative of India. Nonetheless, under the hood, the phenomenon of valuation froth has already begun to emerge, particularly where the small and mid-cap universe exists.
The Nifty Midcap 100 has increased more than 40 per cent in the last year, and the performance of the Smallcap has been even greater. Analysts are of the view that this unrelenting upward trend is likely to be met with volatility, especially when global indicators (i.e. an increase in bond yields or a political crisis) start to work against it.
A Red Flag to Retail Investors?
To the retailers who frequently followings of the actions of the key investors, the departure of Dhawan can be a good time to revisit portfolios. Though this does not necessarily mean a decline in the present state, it does allude to the fact that care and selectivity are required in the present day.
It is not safe to follow big investors in the dark. A strategic rebalance would pass as an exit, as one of the senior research analysts at a domestic brokerage put it. Nevertheless, when experienced investors start making a profit, it is usually an indication that valuations have been overrun.
Dhawan’s Long-Term Approach
Dhawan has always been a long-term believer and value investor known to support the success stories of India. He has, over the years, owned interests in companies to become category leaders, which he has held through market cycles in the years.
His new step, however, is less the loss of belief in the India story and more the damping of enthusiasm in the bubble market. Such caution may be timely as corporate earnings season reports vary (although the global liquidity situation is tightening).
The Takeaway
The recent moves by Ashish Dhwan are unlikely to lead to a reversal in the market but underscore a very important investing principle, which is that it is as important to be prudent in euphoria as it is to be courageous in panic.
With indexes reaching record highs and valuations being stretched across various sectors, perhaps it is time for investors to re-evaluate the asset allocations, make sure they are well diversified, and not follow short-term momentum.
Simply put, the silent exits of Dhawan may not be taken as a cautionary signal, but a master-class in doing nothing poorly- it is a lesson that not all the time is the right time to step back and do nothing.
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