Macro factors and headlines have dominated market activity in the first weeks of 2025. Arun Singhal, founder and chief investment officer at Indicus Capital offers his views on what signals trading desks should be reacting to awash the barrage of news and President Trump’s unpredictable US policy changes.
The CIO discusses the buy side’s macro reckless framework, which looks at its step-by-step approach to trading in volatile environments and adjusting its portfolio’s asset allocations.
“Having the right amount of risk and having that discipline, where you’re not overexposed—which creates a lot of pain and volatility—I think is one of the key [things] when you’re navigating this headline-rich environment,” he says.
In this episode, Singhal also discusses Indicus Capital’s hedging strategy and how the firm is using derivatives to protect its portfolios against long and short-term risks.
Looking at the global growth picture, the CIO paints a worrisome picture of 2025—including the US. While there are a lot of unknowns for the year ahead, Singhal says the one thing that desks can be certain of this year is market volatility.
Interview Transcript
Jo Gallagher Welcome to Trader TV This Week your insight into how trading desks can prepare for the week ahead, I’m Jo Gallagher. Today I’m joined by Arun Singhal at Indicus Capital to discuss the main topics and events leading this week. Arun, welcome to the show.
Arun Singhal Thanks for having me.
Jo Gallagher Macro factors and headlines continue to dominate market activity. What should trading desks be reacting to and what should they treat as noise?
Arun Singhal In such an environment driven by headlines, it’s very important to have a framework. So for us and our clients, we have been talking about this macro reckless framework for the past two years where we have said that we think that the fiscal policy is going to be expansionary and the monetary policy is not going to be enough to create a stable 2% inflation, which means that we have been very bullish on risk assets, including stocks and hard assets like gold and Bitcoin. And we have been less enthusiastic about fixed income.
When a headline hits, we essentially just ask ourselves, is this fundamentally going to alter something within our framework which kind of acts as a guidepost for us to make that decision in the heat of the moment? The second thing, which I would say is that it’s essential to have some sort of self-awareness and understand your own emotional capital, like how you’re going to react to a headline. Is it going to create a fear or nervousness about losing money, or are you going to see that as an opportunity and take advantage of some of the dislocations which are created in the market?
And the third thing is having the discipline and the risk management. Now, just for example, like if you look at the daily moves priced by the S&P options market, they range from anywhere between 60 to 90 basis points. And when a headline hits, we have seen that the market moves by kind of multiples of that. So we’ve seen like about 1.8 to 2.5% moves. So having the right amount of risk and having that discipline that, you know, you’re not overexposed, which creates a lot of pain and volatility, I think is one of the keys when you’re navigating this headline rich environment.
Jo Gallagher How are you hedging against headline risks and how do you build a portfolio that is resilient to this volatile environment?
Arun Singhal To some degree, your hedging strategy depends on your time horizon. Now, when we look at our clients they range from family offices, which have time horizons of multiple years to decades. And then we have some hedge funds that have a very short-term time horizon. And then if you work for a floor desk, I think your time horizon is going to be even shorter is going to be the next trade or the next headline.
So one way we are looking at hedges is where is the volatility mispriced in the option market? And as I was saying earlier about the S&P. The S&P is not pricing a lot of overnight moves and if we look at what happened on the Friday, the 31st of January, there was already an announcement by Trump that he will slap tariffs on Canada and Mexico. And going into the weekend, the risk was pretty high so we bought Monday expiry options, very, very short-dated option.
One percent out of the money which cost us like less than ten basis points. And then the move on Monday morning was like close to 2%. And so that gave us like more than ten is to one risk reward. So that’s one way we are hedging portfolios, which are much more trading-oriented.
For our kind of longer horizon clients, we are looking at more macroeconomic scenarios and saying, okay, if there is a tariff escalation, this leads to a slowdown in the global economy and [can have a] negative impact on growth, so how can we hedge our portfolio, which is long risk assets? We are doing that by buying the front end of the rates curve. So using a lot of short-term interest rate options or buying two-year treasuries, which protects our portfolio against that event.
Jo Gallagher When we spoke last year, you said that volatility had the potential to upend the way investors see fixed income as a safe asset. What is your take on that in 2025?
Arun Singhal When we met in Singapore last year at the Eurex conference, I was again concerned about how the fiscal situation was becoming a little bit more challenging for a lot of developed countries, and this was being reflected in people kind of avoiding fixed income or demanding a higher yield for owning these fixed income securities. And I think my view is that this has the potential to create volatility across all asset classes this year.
So since 2024, since we met, we have had a new administration so Scott Bessent, the new new {US} Treasury Secretary is talking about non-inflationary growth and he wants to bring the deficit down to 3% of GDP. Now, this is great news in the long term, but I think it is overall net negative for growth in the very near term. The other factor which has been driving US growth has been the CapEx, mainly in the artificial intelligence and technology industry. And with the announcement from DeepSeek, there was a little bit of concern about whether we need that degree of CapEx to really kind of make progress in artificial intelligence. So, so far, the earnings announcements from all the big tech companies have not challenged the CapEx. In fact, they’re all talking about doubling down on the CapEx, which they’ve been doing in AI. But we will have to wait and see how this evolves.
The third thing, which has been a driver for growth in the U.S. has been immigration, and I think on immigration front as well, the policy from the new administration is going to be more hawkish. So I think that can be net negative on growth as well. And if that was not enough, we have a president who is creating headlines through his social media platform and it’s creating illiquidity and volatility in the market. And I think this will also diminish the risk appetite which traders have. So overall, I think this is a year which is going to be volatile and I think volatility will be the only certainty in this market.
Jo Gallagher Thank you Arun for your insight and, of course, you for watching this has been Trader TV This Week.
Catch the show each week:
To watch other Trader TV This Week shows go to – Video
Or make sure to follow us on LinkedIn – Trader TV’s LinkedIn
Available as a podcast – here
