We do not buy the same stocks; manufacturing is a theme that can generate alpha: Sandeep Tandon

“If we believe India is going to grow, the Indian economy is going to grow, then without logistics we cannot grow. Infrastructure is important and within that, logistics is a very important category. It is a very long-term core thesis. We have added logistics stocks and maybe given an opportunity, we will add more such names in our portfolio because this is the core portfolio strategy and this could be a decadal opportunity,” says Sandeep Tandon, CIO - Quant Mutual Fund

What will you do differently to ensure that your funds remain in the top quartile? What are you planning to do as a strategy?
The way we have been handling money for the last many years. We always talk about how we live in a very dynamic world and hence the money management style also has to be equally dynamic and that is something which we have demonstrated in the last few years. Our agenda in 2023 is also to continue with that thesis because that gives us agility and ahead of the curve thinking. One can differentiate it from the masses and that is the way we are trying to build, where we are trying to combine multidimensional research, which is working for us.

I think that thought process continues for 2023 also.

What is your market call? Are we in for a year like 2022 where Nifty does nothing while individual stocks outperform?
The way we are looking at the market, yes Nifty has been one of the biggest outperformers in 2022. Brazil, Argentina and maybe India are the three markets that have done extremely well. So there is a high probability that India can correct now and consolidate on a relative basis.

So let us talk about relative basis first. There is a high probability of the Chinese market doing very well. The data points are very constructive; they have been in a beaten down neglected zone for a while and so it is a possibility that India may underperform on a relative basis. But we remain very constructive as a value, as a thesis, which we have been talking about for a while.

I have been saying from November 2021 that this decade belongs to value and if you really look at even in the last few days also, in the last one year, value has outperformed. So it is a thesis which we are trying to build. It is in very early stages. We are trying to identify stocks and sectors in this territory.

Globally I am not looking at just India but that thesis is looking well for India as an emerging market. If we are talking about China, let us say everybody is very gung-ho. We have been talking for nearly a month now that metal is the surprise element which has done quite well in the last one month or so.

If you ask me what will be the theme for 2023, metals will be one of the spaces I look at extremely positively both from a medium and longer-term perspective both in absolute and relative basis. PSU continues to be another important theme where you might see some amount of correction and consolidation, as we have seen very recently, but the larger thesis or value still remains intact.

Another thesis which we like is the power sector. That is another opportunity building and so it is a space which we have to identify. I look at the sectors which are neglected, beaten down and are in the most neglected or untouchable zone, from money managers’ perspective. These are the areas where you will generate alpha in 2023 and maybe in this decade also.

In your active fund, the top holdings have a large quantum of infra. I can see Adani Ports and IRB Infra. All across, it pretty much seems to be a consensus trade now.
Yes consensus can be built but it is not reflected in the action. If you really look at the holding structures of most of the mutual funds or the FIIs, you will not find these names in proportion. If they are consensus trade like banking is a consensus trade, then their holding should be significantly high, which is not the case. That means we are talking about it but in terms of action, it is not reflected. That’s why we still believe these are the areas where opportunities will be much more as compared to what people are perceiving at this point of time.

Would you look to add more to the same names on dips or maybe add more names into the infra pool?
The way we look at our portfolio, we do not buy the same stocks. It is not our philosophy that we do not believe in a model portfolio where you keep on adding so that in good times, it becomes a very self-fulfilling process and in difficult times, it becomes a self-destructive process. The way we look at it is if anybody allocates new money to us, we will try to see what is the best opportunity from the current level for the next 12 -15 months or next three years. That is the approach we follow and it may or may not be necessary that I will be participating in all these names which we already have. I would like to look for new opportunities also and there are plenty in the market.

What are those new opportunities because apart from financials which is a consensus buy, IT looks like manufacturing, industrials and the entire capex related theme is also making quite a bit of comeback? Is that a space which is one of those areas as well?
Manufacturing is a larger thesis which you are looking at from a current decade or half a century perspective. Anything revolving around manufacturing is an area – whether talk about capex or capital goods stocks or industrials or infra names and even the financials. These are the names which we are looking at but we have to now look at the stock specific opportunity like the capital goods. Some of the names have become very expensive, some infra names also have done very well. One has to keep on identifying the stocks which are neglected or getting at the right price or qualify for value theses, qualifies for under ownership category. Those are the areas which we think can generate alpha for us.

You manage a mutual fund. So your holdings have to be declared. They include two Adani names; Ambuja and Adani Ports. They also include an IRB and SBI. Some would argue that Adani stocks have seen a huge runup. Is there a margin of safety in them? SBI has gone from Rs 200 to almost Rs 600. Is there a margin of safety in it? ITC is 50 % higher. Is there margin of safety in it?
We are a data driven, research centric house and we do not go by narrative. The narrative can be anything, the data can be very different. So we still like Ambuja. We bought Ambuja much before it became a Adani Group company. We are holding it for a while now and we have added.

We still believe if metal as a cycle will do very well, metals will not do in isolation without cement. If you are bullish on infrastructure as a space, then cement by default is a byproduct of that. We remain very constructive on the cement side and that is the reason, it is one of the large holdings for us.

We also like infrastructure as a thesis, ports or airports or the entire logistics space. We are actually very bullish on that. Logistics is not only about one name. We have a large portfolio on the logistics side and own three, four names in the logistics space. So we remain very constructive.

If you believe that India is going to grow, the Indian economy is going to grow, then without logistics we cannot grow. Infrastructure is important and within that, logistics is a very important category. So it is a very longer term core thesis which we have for these names. We have added logistics stocks and maybe given an opportunity, we will add more such names in our portfolio because this is the core portfolio strategy and this could be a decadal opportunity.