Stock Portfolio: Don’t Panic! Take this opportunity to rebalance your portfolio: Sandeep Tandon

“In two quarters, when you sit down and look at FII’s holding data, you’ll see that in growth stocks its ownership has decreased and it has increased in value stocks. That’s a trend we’re seeing globally. I will not look at it in isolation that FPIs are just sellers. It’s a sale of growth stocks, not value stocks. You have to rebalance your portfolio and optimize this opportunity,” says Sandeep Tandon, CIO – Quant Mutual Fund.

It looked bad and now it looks ugly. Will it get much worse before it gets better?
I even said last week that we are on the cusp of a tipping point. Sometimes it extends for a few days here and there.

Let’s start first with the dollar index. We are already slightly above 104. At worst, we are approaching 105 and that may happen in the next one, two or few trading sessions. The dollar index breaking 105 could be a disaster. But given the data points that we’re looking at, it’s showing us some signs that it should peak and it has.

When this crisis began, the foreign exchange market was the most stable, including emerging market currencies, and the Brazilian real appreciated. So the most stable has suddenly weakened in the last 10-12 trading sessions. Whether it is emerging market or developed market, currencies have depreciated significantly against the dollar. That is also giving me some signs that the dollar index is peaking and currencies are bottoming.

Let’s look at one more data point in terms of Bitcoin, which is the proxy for risk appetite. From $48,000, it has corrected closer to the $33,000-34,000 mark. I still believe that even Bitcoin is from a very short term perspective giving us early signs of bottoming between 30,000 and 32,000 which is not too far off given the volatility in Bitcoin. . It reflects the risk appetite of the masses or the new generation in particular and that also gives me a sign that even Bitcoin should bottom out.

Similarly, if I start looking at the dollar, the yields have already crossed 3.1-3.2 and are closer to 3.35 or 3.36. The US 10-year yield should also peak. If we combine multiple data points, Nasdaq is closer to the 12,000 mark, S&P closer to the 4,000 mark. The extreme scenario being constructed in terms of behavioral data points shows extreme signs of pessimism.

So a sharp move up is just around the corner. Whether it happens today, tomorrow, or in the next five trading sessions, we are closer to that turning point where you should see a sharp reversal. I will look for this opportunity to buy rather than panic too much about it.

What you have told me so far is a global construct. Let’s look at the construction of India. This year we have done very well. S&P is down 14-15%, we’re not even down double digits. So is the dollar index or what is happening on the Nasdaq really relevant to India right now?
India has been outperforming emerging markets and it is also reflected in the INR USD pair which is relatively more stable compared to Asian currencies including China or some of the other names. So from India’s point of view, this is relatively more unique. We remain very constructive on India. We are on the very cusp of data points to reverse as well, but since the global context is equally important, the sharp move that may come with the global context may be more significant rather than just looking at India in isolation.

So even if I have to look at risk appetite for the global market, including India, or liquidity, even that is slightly increasing. If I look at much higher global liquidity, I think that is about to reverse as well and maybe in the days of week 10, we will be in a position to say whether or not the data point has reversed. So multiple data points are reaching that tipping point where ideally it should reverse.

It’s a new low for the rupee, and usually when you’re in trouble in the world, defenses come through, whether it’s pharma or IT. This time, in a tough environment, despite the rupee’s tailwind, IT has underperformed and pharmaceuticals have underperformed. Why doesn’t classic defensive trading work?
I always say that in September 2021 we have seen a multi-decade high for these stocks in terms of valuation multiple. So since there is already a multi-decade high then the sector or stock needs to correct and every pullback rally will be used to get out because these are so over-owned. The whole world has been hiding behind these names in recent years. So that trend has actually reversed.

I’m not going to look at it purely from a currency perspective just because the currency has started to depreciate. The pharmaceutical industry should benefit because it’s not overly owned and has its own challenges on the margin front, but that should bottom out maybe in a quarter or two. So we continue to be more constructive in the pharmaceutical industry. IT will definitely fall into the underperforming or market performing category, definitely not the outperforming category.

The Street has been overweight banks and financials, but even that trade has failed to materialize and has underperformed. Can that take us every time we get out of this cycle?
Let me put it this way. Will the banking sector relative to IT outperform? Yes. Banks will outperform IT. Within banking, which should be the best? Very clearly, PSU as a topic should overtake the private sector. Since the growth sector has peaked in terms of valuation multiples; it is the theme of value that will be developed from the perspective of a decade. I would like to play with value in that basket; so all PSU banks and there are large public sector banks will qualify. They are well below the ownership and are currently trading below the book or perhaps closer to the book. Those are the names one should capitalize on.

FPI ownership is now down to 15% versus the maximum of 22%. Can that be a trade if FPIs continue to hit the sell button? They have done it in April too. Is that an option to consider stocks that are largely not owned by FPI?
I will not look at FPI in isolation. I’ll come back and remind you that it’s about growth versus value because FPIs far outperformed growth stocks and that trend has reversed globally. So it’s not about FPI selling just in India, it’s about a sell-off that we’re seeing in growth stocks globally. We will also see the repercussions. But at the same time, even though we define value from a very different perspective, even those names will see opportunities.

In two quarters, when you sit down and look at FII’s holding data, you’ll see that in growth stocks its ownership has decreased and it has increased in value stocks. That’s a trend we’re seeing globally. I will not look at it in isolation that FPIs are just sellers. It’s a sale of growth stocks, not value stocks. One has to rebalance their portfolio and optimize this opportunity.

He had previously talked about pruning the portfolio from growth to value and how he had reduced his exposure to technology stocks. Right now, there is an opportunity to buy, as there is a new move around the corner whenever. Would you be looking at some of the hit or abandoned territory? Would you keep some of the heavyweights?
The way we see it, more or less most stocks have corrected significantly and therefore there is value or opportunity in terms of neglected territory for both growth and value stocks. When we look at it from our core holding perspective, we dissect our portfolio in such a way that we buy 70-80% core holding and 20-30% more from a trading perspective.

We’ll look for that 20-30% opportunity even on tech names or hit consumer names, so it depends on the opportunity, but those are more tactical bets than growth names.

(Disclaimer: The recommendations, suggestions, points of view and opinions given by the experts are their own. These do not represent the views of the Economic Times)

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