investment strategy: what’s the secret to outperforming the market? Sandeep Tandon explains
In the last 10 days of the accelerating market fall, we have seen significant profit taking in some of the real estate names. Would you say long term fundamentals still look intact for real estate and buy those market dips when it comes to real estate stocks?
The investment cycle in India is in our favor and real estate is a by-product of that cycle. We therefore remain constructive in this sector as well. But we have seen that the easy money phase that was made last year in the real estate industry is largely over; but from a longer term perspective, our data points have not peaked. So you don’t have to worry too much. Obviously given the nature of this industry the beta is significantly high so we will see some strong reactions like the ones we saw on Monday and yesterday they have also recovered just as strongly. So in a 2-3 year perspective, we remain quite constructive on real estate stocks and still hold some of these names in our portfolio.
Banks have come on the safe side of the pandemic, they’ve raised capital, growth is back, the NPA cycle has reversed, and a new round of investment is upon us. Yet banks have underperformed and have been underperforming for some time now. Is there something that is worrying the market that we are not able to understand?
There is a very simple answer. The weight of the sector in the Nifty is very high and it is a sector largely owned, not only by the nationals but by the FII in particular. Over the past month, we have seen some peaks in the dollar index. Whatever we have seen in the last one and a half months has not been very constructive from an IFI perspective and that is why we have seen some extraordinary profit records occur.
Another phenomenon, also from the point of view of the FII, is that their calendar year is December and therefore their bonuses and things are tied to the end of the year, which is why we have seen pressure from extraordinary sale occur over the past few months and a half. particularly in banks and large caps, where any stocks or sectors that are heavily over-held by FIIs have in fact seen sell-off.
It is now December and traditionally from a seasonality perspective December is relatively more favorable for equities globally and volumes will obviously be down. So the extraordinary selling pressure and the extraordinary short positions that we have seen in bank names. From the current level, this is a good opportunity to make money in these names because the fear is very high and people just give up.
Why do you like textile stocks? Textiles are like a low-margin business, very volatile and highly dependent on global trends.
The China Plus theme is going pretty well and India is quite well placed for this space and given the interest of the government as well, it has generated one of the biggest job opportunities. Our call is much more global in nature. We have seen the China factor play out. Vietnam and Bangladesh also have their own challenges. India has a large capacity, a good amount of raw material, and we had a leading status in this industry for a long period of time, but we lost it in the last ten years. I think it’s coming back.
Very recently you explained that over the past year the Quant infrastructure fund has generated a return of 119% and outperformed the benchmark by over 60%. Going forward, what is your strategy to ensure that this outperformance continues?
We’ve been talking about infra as a topic for quite a long time and it’s just catching up. We remain very constructive on capital goods as a cycle or infra as a theme. I don’t know for the next 5-10 years, but looking ahead to the next three or four years, that visibility is there and it’s largely under-owned.
This space has underperformed for a long period of time so I think the opportunity is there and the factor on the supply side is very limited. Now the pressure we see in the banking industry is not seen in the infra names.
Our strategy is not to buy and hold and sit in a longer term perspective because we believe that we are in a very dynamic world and the dynamics of the global market keep changing and evolving. . So our money management style is also very dynamic and we have been working on our framework where we only give a third weight to valuation analysis based on cash flow, but give a two-thirds weighting to other components like global liquidity and global risk appetite.
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So we have combined in very simple terms what we call fundamental – atman, liquidity – prana and feelings – maya. We capture the three aspects quantitative, qualitative and behavioral. By combining it we are able to outperform the market and I think the framework has worked pretty well and we think it should continue to outperform the market.
When we talk about the return of cyclicals and you’ve talked about rotation in the past, deep value stocks, get back to basics. What happens in the case of platform actions? Some people say they might dominate Nifty and Sensex in the future. These are losses, but should we bet on the future now?
They certainly have a very interesting business model and that is what it is for the future, but we also have to keep in mind the valuations that we buy for these names. The perception indicator for growth stocks has peaked and within growth I want to exclude the VE or revolving space as we haven’t seen any significant peaks to say they peaked. But if you look at a broader perspective and see signs of this spike, there is simultaneously euphoria in the domestic markets over very recent listings. Everyone, even mature investors with 20 to 30 years of experience, is sucked in.
It might go on for a few more months, but in the end it all depends on the cash flow and whether you want to give that kind of rating. Personally, I think that while global volatility remains relatively high, this is a phenomenon where the cycle has gone pretty well. But are we going to participate in these names? The answer is clearly no because we believe that other opportunities in the market are just as significant and with lower risks we would like to seek optimized returns for our investors in terms of risk adjusted returns and these names will not be. not eligible in our model portfolio.