Easy phase of bull run over, says Sandeep Tandon; decodes what to buy, sell and hold now

“Fear in the market is not as high as in March 2020. Global liquidity still remains reasonably ample but in terms of percentage, it has started drifting down a bit, says Sandeep Tandon, MD & CEO, Quant Mutual Fund

What is your assessment of the market because there are two big moving parts now; one came from the Fed last night and one which came on the Covid front last week?
Let me start with the Covid front. Let us understand what happened in March 2020 and where we stand now. It will give you a better perspective in the larger market angle. In March 2020, a similar fear was there though obviously the intensity of fear then was significantly high. By the way, today also the India fear index, the bond fear index has shown the second largest spike we have seen after 2020. When 2020 unfolded, the risk appetite collapsed and liquidity was extraordinary. This was a lethal combination for a bull run and for nearly 18 months of mass spike.

Now let us understand where we are right now. From a global perspective, the money flow towards global equity in September was at multi decades high and since then it started drifting down a bit okay. The second most important thing is that global liquidity still remains reasonably ample but in terms of percentage, it has started drifting down a bit.


Thirdly, risk appetite, particularly developed market risk appetite, is slightly declining but it has not collapsed significantly and one should not be worried about it too much. If I have to combine, we can say that we are in a euphoric phase globally. But can this euphoria last for a few more months? The answer yes, may be. After the small correction or consolidation which we are seeing, it can still move up.

So if I dissect the euphoria between the component of growth and value for MSCI world or FTSE world, then the very interesting data which comes out from Quant Perception Analytics shows indicators have peaked out or seen a euphoric sign for growth stocks globally while value stocks are actually on the lower end. So the euphoria has been only in growth stocks and not in general.

It would not be fair to say that the global market has peaked. From the liquidity perspective and money flow perspective and risk appetite angle, we can easily conclude that the easy phase of bull run is over. But we are still in a bull run. It is the difficult phase of the bull run. From the current context, we have been slightly cautious for the last two months or so. We have been talking about the VIX cycle inching up. The India fear index is second highest after 2020. In terms of liquidity, in India, good liquidity is still rising and risk appetite on a relative basis is better than global markets. It is seen towards the upper end and there is a marginal drift but that is largely constructive.

If I have to conclude from multiple data points, have we seen a top of the market in India from a longer term perspective? The answer is clearly no and the upside is still pending. We have not seen any classic signs of euphoria. Yes we have seen euphoria in smallcaps, in certain growth stocks and certain pockets, but that does not mean that we have seen an euphoric move in the Indian market as a whole. So, we remain very constructive for Indian equities from next few years perspective.

Divide the market in three parts for us based on your understanding and your technical plus fundamental indicators -- stocks which you would like to buy in this decline, stocks you will hold and stocks you will sell.
We do not want to be stock specific but we can definitely talk about the broader sectors. The first point to make is that the weightage of the value portfolio should be significantly higher. The sectoral themes which we like include banking despite a very massive correction in the banking space very recently.

So we like banking from the current level, capital goods, maybe media, textiles stocks. Some of these names are still looking good to us and we believe that the India capex cycle has just started and it is typically slightly long lasting. It lasts for 8-12 years and derivatives of the capex cycles are much more. We remain very constructive on the overall capex cycle and if I have to talk about the larger value theme, then emerging market are also considered as value relative to developed markets. So one should be skewed towards value rather than growth from the current levels.

You seem to prefer the value stocks. You have talked about banking as well as textiles. What about infrastructure, power and all of that?
We remain wary when we talk about capex and capex cycle. Infra is part of it, power stocks are also part of it. We remain very constructive on power and energy stocks in general.

Monetary stimulus as an exercise has collapsed or failed miserably in the last many years. Now The fiscal stimulus cycle has started. The US is another example which is going to happen and whenever we see fiscal stimulus happening, the infrastructure spending actually moves up and given the interest which we have seen in the commodities market, that is also an indication that capex cycle is coming back not only in India, but globally.

What is your view as far as IT goes?
Sandeep Tandon: We believe that the market never penalised or reacted in the same manner for surprises which we have seen in 2020. The impact of the second Covid wave was slightly lower and now we are talking about a third and may be a bigger wave. I do not see anything happening on that front because our perception indicator for technology stocks globally are trading at lifetime highs. When I say perception indicators are peaking out, we are not trying to say that their price has peaked out or their earnings have peaked out. What we are trying to say is that the valuation multiple of this sector is actually high.

When earnings expand and PE expansion happens, that is the time one makes maximum money. One important factor of PE expansion or the multiple expansion has started declining. We believe that valuation multiple for this stock or this sector has peaked out and we are remaining very cautious. I am not negative. The outperformance phase in IT seen in the last many quarters has peaked out. We remain very constructive in this space. For a longer term perspective, the answer is yes but the outperformance has gone, they will be a market performer now.

What about pharma? I hope the Omicron variant does not spread the way the first variant did. Do you think the prospects of pharma will now change?
From our Quant Perception Analytics point of view, pharma peaked out in March 2015 and then it bottomed out in September 2009. From the current level, we have seen spikes and small corrections happening in pharma. Yes the easy phase has been played out and we have seen a correction and consolidation happening.

We remain quite constructive on the pharma space from a longer term perspective. The buy on dips strategy should be very effective and the second up move is irrespective of the Omicron variant outbreak. Sometimes, cycles are about to change and then some event unfolds and it just acts as a trigger. Similarly, when the market was significantly euphoric and then some event happened and then we see correction. All these are excuses. We remain very constructive on the space but risk appetite as well as liquidity indicators for the pharma sector as a whole is again inching up. So we remain very constructive from a longer term perspective.