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00:00Let's go across Sandeep Tandon, MD and CEO of Quant Capital with us on the show.
00:04Sandeep, great having you, thanks for taking the time out and such an important time to have you
00:08because we are starting to see some jitters around growth,
00:13at least high frequency indicators from economists seem to suggest that
00:17and earning season, let's be real, hasn't started off very, very strongly.
00:23How does a large investment house like yours think about the landscape currently?
00:30Neeraj, as a house, we have been very vocal right from July, first week, early part of July,
00:37we have been talking about deterioration global macro,
00:41we have been based on our predictive analytics, we talked about going forward,
00:45we expect the employed quality of the process across market will spike
00:49and data points are deteriorating, risk appetite for India is also declining.
00:53The only thing which is holding the market globally
00:56and was holding in India for a long period of time was the liquidity.
01:00So liquidity still remains elevated and still rising and the other data points are changing
01:06and that's the reason we as a mutual fund has taken a very cautious
01:10and a very conservative approach, move our portfolio to an expensive name,
01:15a good name from high beta to low beta.
01:18So all those things we have done in our portfolio and we think still I will wait
01:24for more data and clarity before taking a really aggressive view on the market.
01:28Right now, I think it's a wait and watch sort of approach and data points,
01:32I completely agree, not many high frequency data, which we also practice,
01:36is slightly deteriorating and that's the only thing with the help of predictive analytics,
01:41we were relatively early.
01:43You tend to do this for so many years now, this whole predictive analysis,
01:47the book that you write, etc. What are levels telling you as well?
01:50Because I think you combine both high frequency data, maybe a bit of technical data,
01:55all of that. What is your sense about, what is the downside to this market currently,
02:01both based on global factors as well as local factors?
02:04I am not a good technician.
02:09Agreed. But your book typically used to lay it out, right?
02:14It's more of a representation of a graphical manner,
02:19but it is more of a macro and mathematical models which we run at our end
02:24and we are predominantly a behavior house.
02:27So if you ask me from a behavioral perspective,
02:30a lot of early signs of disturbances there in the market,
02:33and that's one of the reasons we believe that easy phase of bull run is over.
02:37We are in bull run, but in decisive bull run, but we are in a difficult phase of bull run.
02:41I look at even the amount of frenzy which we are seeing in the IPO, QIP or any block.
02:48When promoter don't see value in their own company,
02:51they are booking profits or they are selling.
02:54There's a queue by the best names in the world and trying to identify these stocks
02:59and wherever the queue is bigger, people are just standing to,
03:03because the logic is that market is moving up.
03:05There's no impact cost. I will get in without any impact cost.
03:08And these are like typically signs of worry for me.
03:11Look at some of the IPO got listed 100% premium on the listing itself.
03:17Within a week's time, 100% returns.
03:19So this sort of move when you come,
03:22it gives you some sign of alert that some amount of frenzy is getting built.
03:27And whenever that sort of phenomena happen,
03:29it's additional data points for you that one has to be slightly cautious.
03:35I'm not saying that this is the top of the market. No.
03:38India has a great story. Something has changed for India.
03:41Based on our perception analytics data,
03:43we can say India P multiple will remain elevated for a longer period of time.
03:48So a lot of people who believe that P multiple for India for last six quarter has been higher.
03:53That's the reason the market is now corrected.
03:55They have been proven wrong for more than six quarter now.
03:58And I still believe that this thesis will not work.
04:02What we have to look at. Don't look at data in isolation.
04:06OK. And that's the reason in our research,
04:08we talk about multi-dimension approach or multivariance model,
04:12because when we talk about multi-dimension, that gives you a better perspective.
04:16It's the example when you're talking about valuation, I agree,
04:20has been rich for a while, but it is not absurdly rich,
04:23where we need to say that we have seen a classic sign of euphoric happening in the market,
04:28which is not the case. Now, if you look at it in one dimension,
04:31you don't get answers. But if you the moment you bring the second dimension of,
04:35let's say, liquidity, liquidity, what was the liquidity lesson in 2000?
04:39Today, in 2024, liquidity is a few hundred times.
04:43What was the liquidity in 2008 or even 2018? 2008 was a classic seven,
04:47eight Lehman crisis, post Lehman crisis.
04:50Best of the people thought that is the biggest liquidity where we have seen in the world.
04:54OK, where all central bank came together. I'm talking about that.
04:58That's the way the QE started. But today, if you really look at the global liquidity,
05:02it is few times of 2008 also. So you cannot ignore.
05:06And that's the reason the beginning of the show I talked about,
05:09what is driving the market is the global liquidity.
05:12And that is very important. You cannot. And third important aspect is the sentiments part,
05:16which we call it in a risk appetite. Risk appetite is also have risen sharply
05:21in most of the market, except that China and China has just seen the reversal.
05:26So it's a combination. When you try to look at multiple data together,
05:30you get more clarity, 100 percent clarity. Nobody has.
05:34OK, simply all operating the world of uncertainty.
05:37If you get more, more, I will not say certainty with more clarity,
05:41then you can take a better decision making process.
05:45Sandeep, hi, good morning. Tamanna here.
05:48You talked about the question of where global liquidity is going and
05:52what is maybe compounding the pain from the Indian perspective is the FII outflows.
05:58Do you see that deepening? We've already hit record levels in the month of October,
06:02topping what we saw in Covid post-Covid March 2020.
06:07Do you see that deepening as China is showing signs of resurgence?
06:11The data we saw this morning is perhaps better than most expected.
06:17See, let's let's understand from the FIIs perspective first.
06:21OK, the way we sitting in India, how we manage our risk,
06:25we manage our risk by stock rotation or sector rotation,
06:29because we as a mutual fund or domestic house has no other option but to play in India.
06:34And hence our all risk mitigation strategy with regard to these two pieces.
06:39OK, but now look at the FIIs. They have options to play in multiple countries simultaneously.
06:45OK. And if everything in life is not about absolute, it's also about relative.
06:51So in absolute basis, they made tons of money in India in last two years, the last four years.
06:56On a relative basis, China was in the inflection point a few months back,
07:00or let's say in the last month itself.
07:03And they saw some turning point with some government after a long period of time,
07:07have taken some decisive step towards this.
07:11Whatever China is doing is some sort of easing only.
07:14Only the quantum can differ what people are expecting.
07:17A very sizable that has still not worked out, but directional is right.
07:21So I think the way I look at the FIIs, they are opportunists and they are flipped.
07:26OK, and this flip flipping thing, when the cycle starts, OK,
07:30it can last for a longer period of time than when we think.
07:33So unless China peaks out completely and Indian market bottoms out in a big manner,
07:38and that's the time the cycle can again reverse.
07:41So what we have to understand, a lot of people link with the hot money.
07:44It's not only hedges have moved out. Hedges are very quick.
07:47OK, even so-called what we have defined them a long account.
07:51I don't even call them long account. They're a trading account.
07:53They flip very fast because they trade globally.
07:56So if the trading accounts are also shifting, I'm not quite surprised
08:00because the data driven approach, if you look at and they have opportunities.
08:04So they are doing that.
08:05And historically, you go back and check whenever China has done better.
08:09Global markets have not performed well.
08:11And in India, definitely it has, I will not say perfect inverse relation,
08:15but definitely when China performs, India tend to suffer.
08:18And this is a phenomenon which is, again, repeating because it's based
08:21on this allocation towards emerging market, because India and China both
08:25are last part of the emerging market basket.
08:27So obviously, if you're shifting from earlier money shifted from China to India
08:31and India was the biggest beneficiary now, some manner reverse has started.
08:35But I can only tell you from a structure perspective,
08:38this could be a short-term phenomena and which can last maybe a quarter
08:42or maybe a few months.
08:43But if you look at from a perception analytics data for India,
08:47we think we are very constructive about India.
08:50India will remain reasonably strong from long-term perspective.
08:55So India for me is a buy on dip strategy.
08:58If you are a long-term investor, I don't think one should be too much worried
09:02about the short-term correction or consolidation which India is going through.
09:06The thesis, it should not happen that you try to move out in the current
09:10environment and you miss out the biggest bull run in your life.
09:13So that's the way we define that this decade belongs to India,
09:16maybe half century belongs to India.
09:18But again, after making these bold statements, one should not get carried away.
09:22Keep in mind, there's no moves are linear.
09:24One has to optimize.
09:25This is a larger picture which is looking at and hence stock rotation,
09:29sector rotation one should play.
09:31And this is something what we are doing called mutual fund reasonably value.
09:36Right.
09:37Sandeep, hi.
09:38It's also Samina joining in.
09:40So how do you now allocate incremental money that is coming in?
09:44Do you feel like this correction is going to be a slow grinding one
09:49that will test the most optimistic bull?
09:52Or do you think over the course of the next six to eight weeks,
09:55we may have a few days where the correction will be sharp and very swift?
10:00It is very difficult to predict these things, you know,
10:03how consolidation will happen.
10:05Since we as a house, we obviously we are analytic driven and data driven.
10:09Okay, when data point change, we will change our standard.
10:13As of now, if you ask me, the market has potential to correct
10:18and consolidate more before you see a sharp reversal in the market.
10:22But India macro on absolute basis, I can say, yes,
10:27it is expected that second half of 2024 will be relatively weak.
10:32But as we cross now, the second half,
10:35maybe we enter into 25 or 25, 26 cycle.
10:38Then people start looking two years forward.
10:40Then market becomes again attractive.
10:42It's not be that expensive as you are looking at,
10:45because there's a slowdown in the earning this year.
10:47But what is very important for us to understand that is that
10:51for a longer term perspective, medium term perspective,
10:54India is very constructive.
10:56So one should look for a buying opportunity,
10:59rather than for any retail investor or any masses,
11:02the type of people who are referring.
11:04Definitely is a buying opportunity, which is,
11:06which will emerge if any meaningful correction happen
11:09and nobody can really pinpoint.
11:12I can only say that it's a mild, it's a risk of period for us
11:16and risk of period.
11:17We always play our back foot, play through large cap names,
11:20play through liquid names rather than playing through illiquid,
11:23which has been working very well for last many years.
11:27Absolutely right.
11:28And I read an article where you said you've actually actively moved away
11:31from illiquid stocks to liquid stocks because you have been sensing
11:34that uncertainty and difficult time ahead,
11:36which as we see, unfortunately, is playing out right now.
11:39But I'm sure at the same time,
11:41this team is studying opportunities all the time, right?
11:44If not today, but over the course of the next couple of months,
11:47so maybe another five to eight, maybe 10% dip from current levels,
11:51or if there's any consolidation, what is it that you'd go out and buy?
11:55Would you buy banks?
11:56Would you buy consumption?
11:57Would you buy pharma?
11:59I mean, it's an open playing field for you, right?
12:02So if you recollect, we have raised cash right from July,
12:06August in a big manner.
12:08And we were sitting on the beginning of October,
12:10also very substantial cash across all the schemes
12:13and particular limit and small.
12:15In this recent fall, we are actually buyer in numbers.
12:18Okay, we have deployed another 4-5% in the market.
12:22And if the fall is anything for whatever reason is meaningful,
12:26we will be aggressive buyer at this time.
12:28That's the point number one.
12:29Point number two, what we're going to buy.
12:31Let's understand that, okay?
12:33So if something has changed, okay, in India,
12:36it means the easy phase is over,
12:39which means I will still not going to venture out
12:41in the high beta names.
12:43I will still like to buy a mega caps company from the time
12:46and then see how it changes.
12:48So again, same thesis.
12:49Let's remain slightly more defensive approach
12:52in our portfolio, low beta names, highly liquid names,
12:56large cap or mega caps name.
12:58So our portfolio strategy revolves around these things
13:00because ultimately as a mutual fund,
13:02what is our responsibility?
13:04Responsibility or mandate is to give superior risk
13:09adjusted returns.
13:10When we will be seeing the risk basket
13:12or risk parameters are changing
13:14and hence your approach towards money management
13:17or the way of your portfolio construction should also change.
13:20So time being, a defensive approach,
13:22a conservative approach.
13:23That's our thing.
13:24Look at last four years.
13:25We were very aggressive.
13:26See, when you is a risk on, in risk on period,
13:29you can generate extra alpha,
13:31which helps you in a difficult time.
13:33In risk off period,
13:34the whole objective is just to protect the capital.
13:36That's a time you don't have to venturing out
13:38and be very aggressive.
13:39That can be challenging or maybe societal sometime
13:42when you see a risk off period
13:44and then you try to cover up your underperformance
13:46and you try to play in the front foot,
13:48that will not work.
13:49So based on whatever adaptive asset allocation thesis
13:53we look at, given the prevailing global macro,
13:55we would like to play safe.
13:57We don't want to showcase any aggression,
13:59even if market corrects and recovers.
14:01Our thesis has not changed as of now,
14:04unless it becomes a completely risk on environment,
14:08which is, I'm not ruling out.
14:09We are expecting that maybe post US election,
14:13I expect risk on Raleigh,
14:14the potential of risk on Raleigh can come back.
14:16Maybe the boot can spike, bit can spike.
14:18There are not many data points,
14:19which you look at.
14:22It's my cycle, which has seen some of the correction.
14:24Can they come back in the market in a big way?
14:27We'll see.
14:28Since we are slave of data, if it changes,
14:30we look into it based,
14:31if you ask me what is the data point is showcasing,
14:33there's a high probability because the bigger event,
14:35which is playing out globally,
14:37the US election is a very big event.
14:39And post that event,
14:40we will evaluate how things look from the macro perspective.
14:45Sandeep, so three buckets, right?
14:47You are largely into the defensive liquid large caps.
14:51You've been sitting on a bit of cash as well,
14:53but you have a very well-performing quant small cap fund,
14:56which can't get into large caps.
14:58So let's assume you sat on a bit of cash,
14:59but you also chose to sit on some themes,
15:02which you believe will probably correct less,
15:05or earnings growth might be there,
15:06which might help these sectors perform.
15:09I would love to know what are those,
15:11because large caps is probably the easier answer.
15:13From you, I want,
15:15where is it that you have high conviction
15:17in the non-large cap arena?
15:20So Neeraj, in terms of law,
15:22if you really sit down and analyze our small cap portfolio,
15:26which is in public domain as of last month,
15:28what is our focus area?
15:31Obviously, yes,
15:32we have to have 65% minimum requirement
15:35as per sit on the small cap,
15:37which we are maintaining,
15:38but remaining 35 is skewed towards either cash
15:41or skewed towards a large cap.
15:43We don't have any mid caps also in our portfolio.
15:46But in terms of sector,
15:48if you look at,
15:49we still like consumption as a theme,
15:52particularly the food-related companies.
15:54So you have seen a couple of names in our portfolio.
15:57We still like larger teams,
16:01or logistic companies.
16:03They are part of our portfolio,
16:05the small cap.
16:06We like some of the smaller banks
16:08as compared to larger banks.
16:10So two smaller banks is there in our portfolio
16:13and the sizable exposure we have.
16:15We like some of the insurance names.
16:17So the smaller exposure towards insurance sector
16:20is also there.
16:21And we like second-line pharmaceutical companies,
16:24or the healthcare space,
16:26or hospitality space.
16:27Those are the area our portfolio has been focusing.
16:31And I think the skewness is quite visible
16:34if you analyze our portfolio.
16:35This obviously is an area,
16:37but the most important aspect
16:39you have to understand,
16:40Neeraj, is that in our small cap portfolio also,
16:43our portfolio is fairly liquid.
16:45Some of the banks we talked about,
16:47it's very easy to sell.
16:49The telecom exposure,
16:50which we have in our portfolio,
16:52very easy to sell.
16:53Or the energy exposure,
16:55very easy to sell.
16:56So that aspect we have kept in mind.
16:58It's not about that you are facing redemptions
17:01or a bigger crisis.
17:02No, it's a mindset, okay?
17:04When environment is tough
17:06and your portfolio is very liquid,
17:08it gives me huge agility.
17:10At the right time,
17:11I can switch from low beta to high beta names
17:14and catch up in a big way.
17:16The cycle is right.
17:17But if you have illiquidity in your portfolio,
17:20the switching games becomes very difficult.
17:22And this is something very important.
17:24The moment we saw the impact cost
17:27in the market is rising, okay,
17:29has a potential to rise further.
17:32We change our strategy,
17:33move from illiquid to liquid,
17:35move from high beta to low beta.
17:37And within the large cap also,
17:39that's the approach we have taken.
17:41So our portfolio in a small cap
17:43is very, very skewed
17:44towards some of the pieces which we like.
17:46And a lot of people question this.
17:48Are you negative on the small cap?
17:50You're cautious on the market.
17:51No, we are not at all negative on the small cap.
17:53In fact, we are extremely bullish on the small cap.
17:56But one has to understand
17:58if I'm bullish on Indian,
17:59a small cap and the nano caps
18:01will grow to the next level.
18:03But what is very important to understand
18:05and reassess your risk appetite
18:07and second important tenure,
18:10because typically every investor
18:12at the peak of the cycle,
18:13his or her risk appetite will be very high
18:15and everybody will give you a lecture of long term.
18:17The market correct six months
18:19or three months, within a quarter,
18:21the tolerance level is not there.
18:23The long term becomes very medium term
18:25or short term.
18:27So that's our approach.
18:29If you are a long term investor,
18:30have a good risk appetite.
18:32Small cap is the area which should remain invested.
18:34Just Sandeep,
18:36the bullishness on small cap, nevertheless,
18:38we have to put it into context
18:40of what we're seeing right now.
18:41And the first rush of earnings
18:44is something that the street
18:46has been a bit disappointed on.
18:48Perhaps other factors have made
18:50the tolerance level a little lower.
18:52How are you feeling about the numbers
18:54you've seen so far?
18:56So definitely it is on.
18:58I will not say it is.
19:00Obviously, whenever you see a huge
19:02negative surprise, the impact you saw
19:04in one of the stock yesterday,
19:05it was very sharp because
19:06it was not expected.
19:08And the expectation,
19:09that's one of the reason at Corn Mutual Fund,
19:11we don't look at the forward.
19:13You think overdone Sandeep, Bajaj Auto?
19:15Do you think it was?
19:16I will not comment on individual stocks,
19:18but I think the expectation
19:20was or some sort of hype
19:22was got built.
19:24And when the hype is shaken or shattered,
19:26then you see such a reaction.
19:28What is more important to understand?
19:30It is not like
19:32a big surprise
19:34because most of the analysts have indicated
19:36and as a house, we know
19:38the second quarter or the second half
19:40of current year, current calendar year
19:42will be weak.
19:43So it's not that we are very surprised
19:45and shocked what has happened.
19:46It is on expected lines, largely
19:48some positive or some negative surprise
19:50would be there.
19:51But what is very important to understand
19:53that the negative
19:55surprise you are actually seeing in a most
19:57of the largest company in India,
19:59but some of the smaller names and smaller
20:01mid caps or small caps.
20:02I don't see this as a trend.
20:04In fact, it is a very case by case thing.
20:06Stock is specifically some of the small
20:08and made and I will say most of the middle
20:10small will deliver better return than
20:12related to large cap.
20:14But what we have to see up to what
20:16extent this is being factored
20:18in the price or not, that is the big
20:20debate one can have.
20:22Suneep, just one quick question.
20:24And this is the belief we all believe,
20:26right?
20:27Be greedy when everybody
20:29else is nervous.
20:30And I think everyone is nervous
20:32right now.
20:33What is your advice going out to
20:35retail investors, investors that invest
20:37in your fund?
20:38There's so much talk about, you know,
20:40upfronting SSTPs,
20:42maybe doing a little bit of a lump sum.
20:44If one has to do that and is seeking
20:46advice, what is it that you will
20:48tell them?
20:49Where should you increase allocation to?
20:51Which fund?
20:52Should it be a flexi cap?
20:53Should it be a large cap focus fund?
20:55Should it be mid and small?
20:56Because those have been phenomenal
20:58outperformers.
20:59And I think you're one of those few
21:01fund houses that has managed to create
21:03significant alpha while other fund
21:05managers unfortunately have struggled
21:07to even beat the index.
21:08So where would you up the game for
21:10investors to?
21:12So the important thing, what we are
21:14saying that if we believe
21:16that India is a long term and medium
21:18term, very constructive approach
21:20and buy on this strategy.
21:22So first of all, one should continue
21:24your shift.
21:25I don't see any changes are there in
21:27terms of because and I think this
21:29time retail is even more confident
21:31than the money manager and the distributor
21:33because they have seen their M2M gains
21:35last many has been very meaningful.
21:37I think it's a cultural shift now
21:39where people where investment is a
21:41part of their journey
21:43rather than sometime it was people
21:45used to do only in the FD and this was
21:47like venturing out in the stock market.
21:49I think that mindset has changed.
21:50People have understand the importance
21:52of wealth can be created
21:54through long term investment thesis
21:56which has played out well.
21:57So one obviously should continue.
21:59Second most important thing aspect
22:01is that everybody has to assess
22:03their risk appetite, their investment
22:05tenure. Once you get convinced that
22:07you are long term player, then
22:09obviously small bid is the best option
22:11for you. But if you are convinced
22:13that you are not that 10 year
22:15or 5 year investor, though you
22:17felt so initially, then I think
22:19in the current context, Flexi
22:21Caps are the good strategy because
22:23it gives me as a money manager
22:25one of the highest flexibility
22:27to shift between mid and large
22:29and small cap depending on the risk on
22:31risk of environment. That's a good product
22:33which we like. Flexi Caps is another
22:35thing I also want to
22:37share with you. We also have
22:39some product.
22:41So let's say every mutual fund launch
22:43product from keeping in mind everything is long
22:45term, but investor has long term, short term
22:47and medium term needs. So we have
22:49very interesting product called Quantamental
22:51Fund, though it's a quant based fund.
22:53But the way we have created the positioning
22:55that money manager invest
22:57their money or allocation is based
22:59on the six months perspective only.
23:01The two quarters where investor
23:03can be longer term. But here
23:05money manager has pressure to identify
23:07the stocks which has potential
23:09to deliver in six months period.
23:11So this is the where in the
23:13current context when your market is
23:15very range down or consolidating
23:17this type of product which has
23:19a very short term or medium term approach
23:21and it basically what it means
23:23it prune downs or bring down
23:25your risk level also because in the
23:27environment is something has changed.
23:29It really helps. Okay, so it's a very
23:31interesting product, let's say in 2022.
23:33Okay, when calendar
23:35year 2022, when majority of the
23:37schemes are delivered negative returns
23:39Quant, Quantamental has
23:41given highest return in the industry
23:43just 28% returns will give you
23:45perspective and market was tough. Benchmark
23:47it was giving negative return till
23:4928% and even in last one year
23:51if I have to talk about it's give you just
23:53this more for my academic purpose.
23:55Okay, give you perspective
23:57typically is a large cap centric approach
23:59in the Quant, Quantamental but it has
24:01competed with the small cap. So it's a very
24:03interesting product which we have designed
24:05if you ask me what
24:07you can look into it. Yeah, no, no
24:09absolutely. I mean, I think in tough times
24:11then you leave it to the experts, but the fact is that a
24:13lot of people watching us right now Sandeep
24:15are keen to understand how you are
24:17viewing the current situation and
24:19I think safe to say
24:21that there are some clouds there but
24:23long term view continues to be positive.
24:25Thank you so much Sandeep Tandon.