“It is a very big call, we believe, all power companies should be given the shot. Now, only challenge comes into picture is that we have to see up to what extent it has been priced in and to what extent it is not,” says Sandeep Tandon, CIO, Quant Mutual Fund.

At the recently concluded GBS, you also had the Power and Renewable Energy Minister talking about how the sector is really gearing up for capacities to meet the growing electricity demand given that there has been a huge surge as well in economic growth. As a space as well, a lot of stocks within the sector have fired up. What is your take on the power stocks?
So power or energy as a thesis, we remain very constructive for a while. We have been talking about it for more than a year now. This is the opportunity which we talk about both not only in public sector, even in the private sector.
And again, this also, if I look at much larger thesis about renewables coming into picture or new age energy, I think then this thesis can last even again for a decadal perspective.

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It is a very big call, we believe, all power companies should be given the shot. Now, only challenge comes into picture is that we have to see up to what extent it has been priced in and to what extent it is not.

So, I think the best strategy to play through sector rotation or through in this case, a stock rotation sort of thesis.

Nothing is very cheap. So, they have all rallied. So, if you are of a view of seven, eight years, 10 years then this space has still potential to get bigger names.

So, I am not talking about smaller company, I think the bigger houses and the power grid companies should be a beneficiary of the space. So we remain constructive, keeping in mind that they have run up a bit more than what a lot of people would have visualised. On the subject of Paytm, I mean, we all know how murky the story is out there. I mean, as latest as this morning, you have got a Macquarie cutting the price target all the way to 275 now. We all know the kind of MCAP erosion which has already happened and what even the finance ministry or the RBI stance is on Paytm. But you were one of the first ones to actually book out of Paytm before the situation got murky. What were the signs that you picked up that told you, it is time to pack off from here?
First of all, right from September 2021, we did not participate in any of the new age companies. It is only in last few months when they have corrected a lot. And we remain very constructive on the digital. We think digital banking will be new reality in this country, maybe in the next few years’ time. And so the entire way of payments, everything looks from a digital perspective. I think something will get changed significantly. Banks will not exist in this form, what we are seeing today. So we actually believe that the de-rating of banks which started can last for longer term perspective. And these companies could be beneficial.

So I am just giving the background with this thesis, we also build small exposure as a diversified portfolio in Paytm also.

But we were not very happy. Some of the data points were changing. So we also pruned down a bit. And then we took a very large bet in another company, which is very sizable.

So we pruned down all the NBFCs and some of these names in our portfolio. But it is nothing. It is just a coincidence that we pruned down a bit and then this event happened. So it is very difficult to reach like this unknown risk which played out. So it is not like we were, it is just a luck factor that by unknown risk, nobody can quantify that.

I get that point. But you made a very, very interesting point that banking is not going to be done the way it is. And that is why you are seeing a sort of de-rating of the entire banking pack. In this evolving phase, who do you think out of the current contenders list and the entire financial basket could be the winners and the losers?
Generally, we do not talk about stocks. So that is the reason if you notice that in our banking sphere, I think we could be the ones with overall banking exposure of less than 5% in overall Quant Mutual Fund portfolio.

And in whatever we have is largely PSU banks, we have in a smaller banks, we do not have any large private sector bank in the portfolio.

So obviously, it is a clear indication as a house we believe that leverage economy as a concept will lose its relevance and banks are all part of the leverage economy thesis.

So from a long, but again, this is not something which is happening over the next one year or two years, this is a larger few decade thesis, we are talking about how two decades banking sector and next three decades will not exist the way it exists today.

So obviously, then what is the choice? Okay, if I have to look at, we are very optimistic among the digital related theme anything related to that so any NBFC or the digital side even putting efforts and if it is a meaningful opportunity but we have to keep in mind these are evolving stages.

It is not something we can say with 200% confidence. This is a surety. But obviously, if it comes from the larger group, it has a balance sheet strength, then the probability and there is technological advantage.

The probability of they becoming a winner in this space makes more sense rather than looking and betting for a smaller name. Because it is going to be a huge apex.

Today, everybody talks about AI or ML in this business like we are all using. I can tell you 99% people do not use it. Because the noise level about these things is very high. If you look at the pure IT budget of some of these companies, then you realise that the investments have not been made, which is required for AI or ML-related activities.
So I think it becomes a hype and that is the reason we are more worried about smaller names when you see these activities in the name of digital or new age theme of technology. The hype is much more than the reality. And that is the reason we would like to skip or avoid some of these smaller names and focus on the bigger opportunities.

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