What about inflow, the concern a lot of marketmen have flagged off is that look flows are going into small and midcap stocks and as a result these stocks are getting bidded higher on a daily basis. Is that a genuine concern? And in Quant also if you are getting flows into mutual funds, especially small and midcap, how are you planning to invest it now?
Sandeep Tandon: First of all, if you really sit down and analyse very minutely, the last three months actually in the larger category, whether it is large, mid or small, or the popular category, including flexi, I think the momentum of flow has been reduced. Why you are not able to see it because the maximum amount of flow has come in the thematic side in last, let us say, three months in particular, so that is the reason when you look at total flows, this looks extremely on higher side.
And I think I also have concern when these thematic funds get extraordinary allocations and we are able to push some of the very select names in the market is also from a behaviour perspective we think is sign of alarming sort of situation.
If we look at the rush which we have seen of late in our own industry towards defence sector, a very thematic fund came out.
So, all these names, because so much money was chasing these limited names, valuation has gone to the roof and that gives us discomfort. Now, one way, since we always say we are student of risk, in the business of risk management returns are byproduct, we have to rebalance and reduce the risk. So, with that background, I think sector rotation themes should play out very well. So, we have cut down, let us say defence completely from portfolio.We have hardly any defence name, there are one or two names, maybe 2-3% exposure we might be left with in
defence.
In overall portfolio we have cut down, we have pruned down capital good significantly, because where we saw some amount of hype getting built and valuation was slightly stretched.
If we look at your data points, then obviously we have to rebalance. But that does not mean that we have turned negative on the market and we are only saying this phase can be volatile. And if this phase can be volatile and how will we protect this phase.
So, with that background, the approach is to play safe and even you underperform in that phase, it is a part of a strategy we have to play out. It is not necessary that if environment is not giving you that conviction, you need not to be aggressive at that point of time, right now sometime defensive portfolio is also good.
Our whole approach is to generate returns; yes, to generate superior risk adjusted return. So, when you see risk data is not in our favour and again, make it very clear not from a longer-term perspective, this is we are talking about from a quarter perspective, maybe current quarter gets end in the end of this month.
So, till that time, we remain cautious, as data point changes we will rebalance our portfolio. See, shifting from a liquid to illiquid or shifting from low beta to high beta is a very smooth thing, but reverse is not true. It takes months to do that.
What is it that you are doing right now? You talked about reducing exposure in quite a few spaces. Are you just sitting on cash waiting for it to be deployed or have you already put it to work?
Sandeep Tandon: As I said, we have only large cash predominantly in the midcap and smallcaps schemes or midcap or smallcap centric thematic funds. Those are the areas where we have relatively more cash as compared to what we have seen in the past at our end.
But in other things like whether you talk about a flexi or whether you talk about a largecap fund or focused fund, all those things we are largely invested.
See, as a house, we always maintain 5-6% cash. So, 5-6% cash is not something you should look at because we are opportunist house, when you get opportunity and you do not have cash, so as a strategy we do always have such level of cash.
But beyond that, we are not raising extraordinary cash, but we are playing it safe. So, sometime playing safe makes more sense rather than getting into skew towards whatever is happening in the market because there is hardly any impact.
I agree India is much more resilient and India’s risk appetite is much better than the global market. But I always say, ultimately, the mother of all exchanges, if something goes wrong in US, you do see get impact.
And we have seen every time in the morning, the gap up or gap down is impact of that. So, I like to play safe. It is not like we are very negative in the market, rather we are extremely bullish.
Do not cut down equity exposure, but through sector rotation, stock rotation, or scheme rotation that is the way you need to play but do not exit the market, this is not the way, because it is one of the golden opportunities for India and long-term our perception analytic data is showcasing that something big has changed for India and we all should be beneficiary of that.
So, we are not even advising exiting any of the mutual fund or cutting down equity exposure drastically. The only thing is that just play safe till the time data point changes.
One more thing, considering you actually map and study investor behaviour as well. The recent study which came out from the regulator SEBI talking about as to how 50% of IPO investors have actually booked out or sold shares within even one week of IPO listing and 70% of them have booked out in one year. What is that telling you?
Sandeep Tandon: So, I tell you, I will give you a very small, very simple example, a difference between business and investments. Though everybody call us an investor and every investor in the market say I am investor. But for a retail investor who is putting his saving and trying to create wealth out of from long term, they are really investor.
For all HNI and family office, I do not consider them investor because that is their business. So, rotation and switching is part of their business. And if you get back into this study and analyse who are the people who are sold, so the people who have booked profit in one week’s time, one month’s time, or three months’ time are predominantly will be the people who have extraordinary wealth or extraordinary investment book which they run.
So, it is a business perspective. And it is a mix, it is a business sense for them if they keep on churning and this is what happens globally also.
And if we can keep on churning and they get 5%, 8%, 10%, look at the cumulative returns on a yearly basis is extraordinary. So, I think you should very clearly differentiate between the investor versus business. So, business guy, for them it is a business and they are doing the perfect job for that.
So, where is it that you are sensing that kind of opportunity? Maybe not now, but if you see any consolidation or dip in specific stocks in say the next one to two months?
Sandeep Tandon: So, I think like, let me talk about, let us say go with the financials, like what we did in our portfolio, we can talk about, it will give you perspective.
We have cut down banks, but we have increased some exposure in select NBFCs. So, I said in the BFSI space, we have cut down exposure in banks completely or largely, but we have increased our exposure towards some of the largecap NBFCs where we see value as they were trading in the neglected territory for a while.
Then, we also see opportunity, in last one quarter we have built exposure in the insurance sector.
We are trying to identify where underownership is there and they have been trading in the neglected and the valuations are comfortable, that is the part I think and that is one area definitely looks good.
I think when you talk about consumption as a theme within that FMCG also as a theme, I think it has more legs. We have seen very initial reaction right now and if we believe that rabi crop is also going to be good, the monsoon factor is going to play out in the rural economy, I think that is consumption as a theme should do very well, even FMCG should part of that theme do very well, so that is another area to look at.
Pharma again, we are in a structural bull run from a pharma perspective where IT earnings were impacted in last let us say in two years or so. Pharma earnings cycle is actually inching up particularly on the US generic side, even domestic pharma companies are doing very well.
So, some of the space, then larger infra as a theme where one has to be very selective and whatever reason if some of the PSUs which have been the darling of the market correct, another 10-15-20%, I think that should be another great opportunity.
It is not like in the entire PSU everything we have sold off and everything is negative, no. We have shifted exposure towards some other names. So, I think you have to identify some of these opportunities and continue to hold on from a medium- to long-term perspective, I think it is a great opportunity.
