$2 billion fund manager more than doubles cash holding in India's top-performing mutual fund. Here's why

Pricey valuations and fading hopes of robust earnings growth are leaving India’s equity market short of investible ideas for a money manager at a top-performing fund.

The dicey environment has pushed Abhishek Singh, who oversees over $2 billion of assets at DSP Mutual Fund, to increase cash holdings in a large-cap fund to nearly 13% as of March-end, from about 5% a year ago.

Bearish View

Investors need to temper return expectations despite a recent rally in the stock market, Singh said in an interview at his Mumbai office. The nation’s slowing economy and global volatility are adding to his cautious view.

“How excited can you be about allocating to equity at a time when India is seeing” earnings downgrades, said Singh, whose hybrid fund beat 95% of peers in the past one year, according to data compiled by Bloomberg. “Valuations are still not cheap and it may be a year where we might get sharp rallies and crashes.”

Singh’s bearish views stand out as others such as Citigroup Inc. and Franklin Templeton see the nation as a bright spot in the current environment. India was the first major stock market to recover from the selloff caused by US tariff announcement. Optimism that the nation is relatively insulated from global trade tensions boosted the appeal of local assets before they slumped Friday amid concerns over rising tensions with neighboring Pakistan.

The worldwide turmoil is raising the odds of weaker earnings growth for Indian companies, especially export-oriented sectors such as information technology. MSCI India Index firms are expected to report a 6.6% rise in 2025 profits, sharply lower than the estimate of 13% at the start of year, according to Bloomberg Intelligence. That means earnings growth in India will be slower than in China and South Korea.

Portfolio Rejig

Singh has steadily trimmed equity holdings in favor of bonds, including credit, in his DSP Aggressive Hybrid Fund where debt allocations have increased to about 31%, the highest in at least three years. The 18.4% return in the stock-debt fund in the past year has topped the market and outpaced the benchmark Crisil Hybrid 35 65 Aggressive Index’s 9.7% gain.

His large cap fund, known as DSP Top 100 Equity Fund, returned investors 19.3% in the past three years, the second best in the industry, according to the Association of Mutual Funds in India.

Amid the pessimism in most sectors, Singh is backing financial services firms, with over 25% of his fund’s equity holdings in stocks like HDFC Bank Ltd. and ICICI Bank Ltd.

Singh recommends investors to stagger their investments as both the fund manager and the asset allocator run the risk of a “whipsaw” due to the global uncertainties. “We should not be too aggressive at this point in time.”