Despite global headwinds such as U.S. tariffs, volatile FII flows, and uneven sectoral earnings, market-neutral strategies are proving resilient, says Puneet Sharma, CEO and Fund Manager at Whitespace Alpha – CAT III AIF.
By balancing long positions in strong, liquid names with shorts in overvalued or structurally weak stocks, Category III AIFs like Whitespace Alpha aim to generate steady alpha without depending on market direction.
Sharma notes that volatility and short-term dislocations actually create opportunities, making such strategies well placed to navigate uncertain market cycles. Edited Excerpts –
Q) With Washington’s additional 25% levy—doubling U.S. tariffs on Indian goods to ~50%—how does this hit Indian Inc.?
A) We don’t see this as a broad-based blow to Indian markets. The pain is mostly in a few export-driven sectors. For most large Indian companies, domestic demand is still the main growth driver, and that’s holding up well.
Exporters will find ways to adapt—whether by repricing, shifting product mix, or finding new markets. If the rupee stays weaker, that could also offset part of the tariff hit. So, it’s more of a sector-specific challenge than a full market risk.
Q) Do external headwinds make alpha generation more difficult?
A) Not for the way we invest. We employ a market-neutral, rules-based strategy on top of a NIFTY ETF, so we’re not dependent on markets rising.
Volatility and short-term dislocations help us because they create opportunities to capture spreads between the index and individual stocks. The key is staying disciplined with position sizes and liquidity.Q) How are you reading the June-quarter results?
A) Overall, Q1 was a mixed bag. Banks are still showing good asset quality, but saw a little pressure on margins. Autos were uneven, two-wheelers picked up, PVs were steady, but commercial vehicles were softer.
In IT, parts of discretionary spending slowed, but cost controls kept margins stable. Industrial and capex-related companies continued to do well, while FMCG was patchy. With the monsoon improving, I’d expect rural demand and staples to do better in the second half.
Q) What’s your call on valuations—now that we’ve cooled from the highs, are we “attractive”?
A) We’re not cheap yet, but valuations are more reasonable than they were a few months ago. Large caps look fine if earnings come through, and mid/small caps have corrected a bit, though it’s still a stock-picker’s market.
For us, the focus stays on owning the benchmark and letting our market-neutral overlay do the heavy lifting over time rather than trying to time the market.
Q) FIIs sold ~$4.17B in July across five sectors (₹17,741 crore net). Should domestic investors be cautious?
A) Caution is fine; panic is not. FII flows are cyclical; we’ve seen them come and go. The good thing is that domestic SIPs and pension inflows remain strong and help balance out the selling.
If you’re investing for the long term, stick to your plan, maybe stagger your entries, and avoid leverage. If you want lower volatility, there are strategies like ours that focus on generating alpha without depending on market direction.
Q) With heightened market volatility, how are Category III AIFs adapting their long-short equity strategies to maintain alpha generation?
A) At Whitespace Alpha, we’ve built our Category III AIF to be truly market-neutral, so periods of volatility don’t throw us off course. The way we run our long-short strategy is simple in principle but disciplined in execution, we balance our long book with positions in strong, liquid names and our short book with stocks we believe are overvalued or facing structural challenges.
The goal is for both sides to work for us, not just one. We adjust our exposure and position sizes as market conditions shift, keeping our overall beta close to zero.
This means we’re not betting on market direction; instead, we’re focused on generating steady alpha month after month, even when the broader market is swinging sharply. It’s less about reacting to every headline and more about sticking to a framework that works through different market cycles.
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