Avendus’s 35% Cash Call and the Logic Behind It

Avendus Wealth Management is advising its clients to keep roughly 35% of investible capital in cash, deploying only about 65% into markets right now. Shravan Sreenivasula, Head of Investment Solutions at the firm, stressed that this is not a bearish call but an expression of prudence. “This reflects prudence rather than a lack of conviction,” he said, adding that the firm’s medium-term outlook on equities “remains constructive.”

The 35% dry-powder number is not an isolated tactical tweak. It flows from a broader market diagnosis Avendus is flagging for the current financial year through to FY27: a transition from a liquidity-driven phase, where abundant capital lifted valuations almost indiscriminately, to an earnings-driven phase. In this new environment, stock performance will be determined much more by companies’ ability to meet profit expectations than by multiple expansion.

Sreenivasula spelled out the near-term risks that justify keeping some powder dry—trade negotiations, geopolitical developments, inflation risks, currency swings and weather-related uncertainties. These are the kinds of noise that can temporarily knock earnings delivery off course without altering the medium-term trajectory, making cash a useful buffer to deploy when better entry points appear.

The emphasis on earnings delivery also reshapes where the firm wants clients’ money to go. Flexicap funds are being favoured because “in a market where leadership changes quickly and dispersion across sectors and stocks is likely to remain high, active stock selection becomes increasingly important.” Meanwhile, large-caps are seen as relatively well positioned: trading near their long-term average forward valuation of around 19.6 times earnings, with returns expected to be driven primarily by earnings growth rather than further valuation expansion.

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The Market Regime Change Driving the Buffer and Sector Picks

From Liquidity to Earnings: Why Multiple Expansion Won’t Save You

Avendus’s call is essentially a warning that the easy gains from rising price-to-earnings ratios are over. In a liquidity-driven market, investors could rely on P/E expansion to lift stocks even when earnings were mediocre. Now, as liquidity normalises, “business fundamentals, earnings quality and valuation discipline” become the main levers. That means investors who stay fully invested risk holding names that can’t deliver on profits—even if they look cheap on standard metrics—while missing the chance to buy those that can when prices dip.

Where Avendus Sees Risk of Earnings Misses

Sreenivasula was unusually specific about the sectors most vulnerable to falling short on earnings: FMCG, consumer durables and apparel, pharmaceuticals, aviation, and ports. The pressures aren’t uniform—they range from slowing demand and margin normalisation to pricing challenges and elevated expectations. Among these, FMCG looks the most fragile. In an earnings-driven market, the label ‘defensive’ offers little protection; what counts is whether a company can actually hit its numbers. That squares with Avendus’s continued preference for BFSI and manufacturing as core domestic sector themes, where earnings visibility is improving.

Flight to Domestic Equities and Away from Gold and Global Stocks

The biggest portfolio change since Avendus’s last house view has been a moderation in allocations to global equities and precious metals. Client flows in recent months corroborate the shift: the sharpest increases have been in domestic equities, REITs/InvITs and hybrid fixed-income strategies, while the firm has adopted a “more measured approach” towards gold and duration-oriented fixed-income strategies. Sreenivasula cited the strong rally in gold—up roughly 33% over the past 12 months and still near record levels—as a reason to wait for more attractive entry points before adding. The caution on duration also reflects changing interest-rate expectations, suggesting Avendus sees little urgency to lock in current yields.

What the 35% Cash Stance Means for Investor Portfolios

  • Keep a 35% cash buffer in liquid instruments if you follow Avendus’s tactical line. The aim is to have dry powder to deploy when near-term volatility—trade talks, geopolitics or inflation surprises—creates better equity entry points.
  • Favor flexicap funds over passive index strategies. With high dispersion across sectors and stocks, active stock selection is likely to add value where broad-market returns may be more constrained.
  • Within Indian equities, overweight BFSI and manufacturing. These are the domestic themes where Avendus sees improving earnings visibility, lining up with the shift to an earnings-driven market.
  • Be selective—or underweight—in FMCG, consumer durables, apparel, pharma, aviation and ports. Avendus flags these sectors as most at risk of earnings misses for reasons ranging from slowing demand to margin pressure.
  • Reduce fresh allocations to gold and global equities. After strong rallies, Avendus prefers to wait for more attractive entry points rather than adding at current levels. This caution also applies to duration-oriented fixed-income strategies amid shifting rate expectations.
  • Use any pullback to add to large-caps. Trading near their long-term average forward P/E of about 19.6x, if valuations hold steady, returns are likely to come predominantly from earnings growth—offering relatively better risk-adjusted outcomes in the current phase.