Sandeep Tandon, CIO, Quant MF, says “if we start looking at risk-adjusted returns, it will be far better. Just looking at PE in isolation without looking at ROC or ROE does not make sense. Similarly, just looking at a few risk measures in isolation does not make sense and that is the reason in our disclosure we have added additional data points also which are risk-adjusted measures and more meaningful rather than just looking at unidirectional risk numbers.”

Tandon further says Quant takes concentrated bets because he believes that extraordinary diversification from a mathematical perspective means there is no control on risk.

First, let us talk about the stress test. What has been the conclusion at Quant and what has been your finding?
Sandeep Tandon: Let me explain the larger thesis. What the regulator wants from us is that we should disclose our liquidity position, our risk-related data points, our concentration in the large, mid, or even concentration from a client perspective. I think it is a good exercise from a larger perspective, more from a transparency point of view. But if you really look at the way Sebi has defined it in terms of liquidity or stress test, whatever they are calling it, it is very conservative. They have taken a very conservative approach that you can only sell 10% of the portfolio in a day. In that background also, our scores have been pretty good. We look at the liquidity analytics very closely. We track liquidity analytics not only from India, but also global perspectives.

Unlock Leadership Excellence with a Range of CXO Courses

Offering College Course Website
IIM Lucknow IIML Chief Executive Officer Programme Visit
Indian School of Business ISB Chief Digital Officer Visit
Indian School of Business ISB Chief Technology Officer Visit

So obviously we will be very conscious about our own fund also. For the last four quarters, we have been having a significantly large exposure towards the largecap fund in both our mid and smallcap funds. In fact, current exposure to largecaps is close to 28% to 30% both in mid and smallcap funds. So, we have been very conscious about the liquidity aspect and since we do not charge any exit load except for mid and small, it is a clear indication that 15 days exit load is not much. We generally keep our portfolio very liquid relative to the industry.

While you have enough and more liquidity safeguards in place at the industry level, the stress test could create a lot of stress?
Sandeep Tandon: No, it is a narrative which got built. If you really look at it, the market was rallying significantly right from October. The risk-on value market has rallied sharply. So, the correction was anyway due. I will not say we have reached a very euphoric stage in the broader market. Yes, in certain pockets, there was some amount of hype or euphoria, but if you really look at the larger market, I do not see any signs of euphoria, but obviously when moves are very vertical, it leads to correction, it leads to consolidation, we are in that phase.

This time more from a regulatory perspective or the disclosure from the election commission’s point of view or the nation point of view, even some notices from RBI perspective – many news came together which people perceived as an unknown risk suddenly hitting them and then leading to a correction. But when the market becomes slightly overbought and bound to correct, then any news can lead to this. But this time, the narrative was slightly different.

So, we do not find anything unusual. If you believe that we are in a decisive bull run, then also remember that in the last many months, that easy phase of the bull run is over; we are in a decisive bull run, but it is a difficult phase. So, in a difficult phase and even in an easy phase, one sees multiple corrections. In the last four years, we have seen that on multiple occasions, the market has corrected 5%, 10% and even 15% also. So, I am not going to be very surprised about it, but it becomes a good buying opportunity when you see this sort of capitulatation move happening even in some of the largecap names or some of the sector or stocks which we like. So, it becomes an opportunity for institutions like us to participate.

But tell me with more disclosures, etc, are we going to see costs rising for mutual funds as an industry per se and then would those costs be passed on to investors?
Sandeep Tandon: No, I do not think so, because this sort of analytics, at least at Quant Mutual Fund, we do on a regular basis. This is the first time that the regulator has asked for these things from a transparency perspective. We have our own analytical team. I do not think we have hired any analytical team from outside to do this work. This is very elementary work which any global house, which is specialised in risk management, will track.

In fact, whatever data has been asked for, it has the potential to improve further. For example, the regulator has asked us to talk about standard deviation or beta; but the way we look at or even the turnover ratio, we say these data points are good but in isolation. So, you have to look at additional data points, such as, the risk-adjusted measure like Sharpe ratio, Jensen alpha, or upside capture, downside capture. So, multiple data points are there, multiple risk-adjusted measures are there. If we capture these also, I am sure the regulator in due course will incorporate these things also in the disclosure. We anyway disclose this information in our monthly fact sheet. So, I think globally it comes out. So, I think if we start looking at risk-adjusted returns, it will be far better. Like just looking at PE in isolation without looking at ROC or ROE does not make sense. Similarly, just looking at a few risk measures in isolation does not make sense and that is the reason in our disclosure we have added additional data points also which are risk-adjusted measure which I just talked about. So, it makes more sense to disclose that aspect also because ultimately every investor should know what risk we are taking and what returns he is getting.

Risk-adjusted measures are more meaningful rather than just looking at unidirectional risk numbers. So, I think it is much better to look at the comprehensive risk-adjusted measure like Sharpe’s or Treynor or Jensen alpha type stuff.

Have you seen any redemptions in any of your thematic funds, smallcap or midcap schemes?
Sandeep Tandon: No, in fact, in the last two-three years, I always talked about the retailer becoming more mature. Our inflows remain as it is. Yes, marginal redemptions do happen but net-net we are still getting reasonably good inflow. I do not see that one day data or two day data should become a benchmark and I always said that retail is much more mature.

On any down day, the actual allocation increases and any sharp up move people tend to redeem at that point of time. I think the whole perspective or narrative which we have talked about retail has changed. Retail is much more mature than the family offices or even the ultra-HNI. They have far bigger patience. Their perspective has changed about India and about savings., I do not see any impact on the SIP also. I do not see any bigger impact on the industry on the redemption side, because if you really look at in the last four years at least four or five times we have seen some bigger fall like this and March is a typical month because of year-end related stuff. People tend to unwind their books. We are familiar with this February-March phenomena. It happened last year also. So, I do not see retail panicking. And so far, none of the data points are suggesting anything that we need to be worried about.

What about the view from distributors as liquidity is expected to come down in certain MF schemes?
Sandeep Tandon: With the regulator asking for these data points on a fortnightly basis, it means that incremental flow, because you cannot do much from the existing holding which you have, but the incremental flow particularly in the mid and smallcaps will now move towards more quality names and more liquid names. If you let us add any illiquid names in your portfolio, it will distort your data points. So, logically, most of the fund houses will be looking for more liquid names in their portfolio rather than buying illiquid names. So, there could be a bigger impact on the IPOs because initially, in all the smaller IPOs, liquidity is relatively low. So, we have to be very cautious in looking at the data from a liquidity perspective, less from a valuation perspective.

You have a PSU fund and that is where the knock has been the highest. What has been your strategy there? Are you buying more PSU stocks on every decline?
Sandeep Tandon: First of all, this was the last fund which we launched. So, we have not deployed even full money. We are around 46% and 54% is yet to be deployed and we have time to do that. As far as the broader outlook goes, I always say this decade belongs to value as a thesis and it is a very classic example.

From September 2020 until now also, value as a thesis has done very well relative to growth and Japan is one of the biggest examples. Japan has been one of the biggest value stock market and it is trading at an all-time high now. PSUs are a part of the value basket. If I look at PSUs in isolation, I think the narrative has changed.

In the last many years, people used to have a very negative view or bias on PSUs. But incrementally, PSU allocation within the mutual fund industry is rising despite this sector being grossly under owned for the last many years. For one and a half decades, participation in this space was hardly anything. It is rising now because the governance aspect is improving, capital allocation is improving and the perception for India and PSUs is changing. Something has already changed and I believe it will change further. It is a re-rating story for the sector and not just about the earnings aspect alone.

We remain very constructive about the India shining campaign. The opportunities in some of the public sector companies are very unique. They have monopoly status in areas like railway or defence. So, I do not think that one should get panicking or paranoid about it because the market has corrected. As an institutional player, we believe great buying opportunities come only after meaningful falls. The good part about most of the largecap PSUs is that they are fairly liquid. From the liquidity point of view, we are going to talk about whether the metal stocks, whether we are talking about the defence stocks or even the oil marketing companies in general I think are fairly liquid. So, the biggest concern which people have now going forward that the impact cost is (00:38) rise, you have to look for a liquid names and PSU fortunately qualify for their fairly-fairly liquid.

Your fund in between one group has about 18-19% exposure, just two stocks made for about 15-18% of your AUM, that is Reliance and Jio. Isn’t that a concentrated risk?
Sandeep Tandon: As a house, we are very data driven and analytical. So, obviously, I am not a great believer of well diversified as extraordinary diversification from a mathematical perspective means there is no control on risk. Yes, we do take concentrated bets, but concentrated bets come from the data, the conviction comes from the data. It is not a gut feeling call that we take,

If you recollect, maybe one-and-a-half years back or September 2020, we took a very sizable bet in ITC also, it was 8-9% or 10% of the portfolio. Most of that has been sold off and switched towards Reliance as a publicly disclosed portfolio. We are very constructive on the energy as a basket obviously and when you talk about even from the telecom sector, retail perspective, or the green energy perspective it qualifies very well.

As far as Jio is concerned, we have been very vocal, we sold all of our NBFC stocks and shifted towards one name in our portfolio. It is a decadal call. So, it is not a call which we have taken for just a few months or a few years perspective because we believe something will change the way banking is done in India today and globally also. So, all the digital centric or the NBFCs which are more towards digital should be way forward as a trend has been established globally and I think India is very much in the driving space in this space.

So, it is a strategic call, it is a conviction call and it is a decadal call for us and it has paid off very well. Both the stocks have done extremely well. Another couple of large market cap companies have corrected 25-30%. These stocks have given 30-40%. Reliance and maybe Jio has given actually from the lower levels maybe 50% to 80% returns.


Source link