May Month Con Call Sandeep Tandon - Part I

Added: 2026-05-09

[00:00:35]Once again, a very good afternoon to everyone.

[00:00:39]Can we start the call, Sandeep? I think I'm audible now?

[00:00:42]Yeah, you are very much audible, Sandeep. Yes, very much audible.

[00:00:47]So, good evening, everybody.

[00:00:49]Welcome to the May month call.

[00:00:52]So, let me start with first with market outlook, and then we'll come to the NFO part.

[00:01:05]Okay.

[00:01:06]So, I'm just going to recap you know, just just want to remind how we have discussed January, February, and then what we said in March, and we said how bottom should make, you know, what are the changes taking. So, [clears throat] just briefly [snorts] want to recap, okay? What exactly we said, this what exactly we we showcasing from January onwards.

[00:01:26]How this will be a fragile 2026 risk of inflation, risk of dollar index, okay? Choppiness in the precious metal market, crypto sharp movement, we talked about sharp spike in crude in the first quarter of 2026 geopolitical volatility, and some of the data points. Now, this is and it is largely played out well. So, let me start first with precious metal. So, in beginning 2026, we said that gold and silver would behave like a cryptocurrency, which means they will be very volatile in 2026. And we also talked about our top getting place in January 2026. And we talked about certain ranges and how beautifully those ranges has been respected in the current year. Now, if I have to look at from a very near-term perspective, we have just added that we expect the downward fall to gather acceleration in the month of May itself, okay? Which means market has or the precious metal has more downside. Okay, that does not mean we are turning extremely negative after the correction. We are very clear that this year any sort of extraordinary deployment in precious metal will not reward you much returns, where old world has been very humble about precious metals. And we have seen extraordinary money flowing the ETF side, and that's the reason I've not [snorts] been a great supporter of ETF gold or silver. And we always talked about multi-asset funds are better product. Now, if I have to really look at from a larger commodity perspective, and this is a something trend we are seeing in the commodities market. Now, let's look at the most important data point, crude oil. Okay, this is the area where everybody has an eye. And if you recollect, last month call also we talked about that crude should cycle should peak out in the month of April 2026.

[00:03:26]And frankly speaking, 31st March or end 2026, we saw the highest price in crude, okay? Both in the NYMEX as well as the Brent crude, okay?

[00:03:39]And since then, crude has corrected 25% from the peak. Day before yesterday, one of the media channel I talked about where people are slightly worried that we have seen our top of And I expect the downtrend to begin from May month itself. And today itself, we have seen 6 to 8 dollar or 6 to 9% correction already happening since morning. Now, it can be due to some statement and narrative which is getting built, but this is what data was endorsing because if I have to look at the implied volatility data of the crude has corrected already sharply from 192 60 odd level which clearly indicates that market was not factoring a medium-term and long-term up move in crude. Though most of the trader was slightly worried and people who are more user were even in a very awkward situation. So, I also make a very bold statement that by end of 2026 crude will be similar level what was there in the month of February 2026, which means worst is behind us. Now, that's the way we read geopolitical volatility. It is very difficult for us or anybody to forecast how exactly geopolitical volatility play out. But with the help of crude, gold or natural gas or any other commodities or currency prices, we can draw a lot many conclusion. And this is what we call it market implied analytics. And this is what thing and we have been reasonably successful in showcasing this part.

[00:05:14]Now, we In the beginning of 2026, we talked about dollar could be a biggest perceived risk. I used the word perceived. It's not the real risk.

[00:05:25]And uh from 96 to nearly 100 and a half sort of thing, and dollar did spike spike dollar index did move up. And but it didn't materialize any meaningful. But risk is always risk. You have to be ahead of the curve in quantifying the risk. And we are happy to say that that this cycle didn't play out up to that extent.

[00:05:48]if if it had worked well, then there could be more damage could have happened in the global equities including India, which is not the case. So, dollar has now stabilized and now slightly weakening again, which is not a great news from our US perspective, but definitely a great news for emerging market and India in particular.

[00:06:08]Now, if I have to look at purely from our India perspective, let's spend few minutes on India. And this what was right which you showcase, you know, we said that India's super performance begin from April 2026. Time to increase equity exposure by March and beginning April.

[00:06:24]Now, it was very precise advice which was given and it was relatively bold call which we wrote. And sometime when we get those data points, they do take those bold calls. And this was one of the bold calls which every year we highlighted. This is the time to add swift in your portfolio. This is the time to go long on the portfolio. This is what we said in our first April 2026 fact sheet first day we talked about time to capitalize this opportunity and not capitulate. And that was the thesis. We said worst is behind us, but best is yet to begin. I still maintain that thing the worst is behind us and best is yet to come, but best always come over a period of time. It's We have seen a massive correction and consolidation is a phase which we are right after 20-30% moves we have seen in some of the mid and smaller names.

[00:07:17]They are also [clears throat] a bit consolidation phase before they look at next round of mega.

[00:07:22]So, we talked about signs of capitulation in the mid and small cap.

[00:07:26]We talked about pullback rally in the month of May April and we said we remember of it will be remember it's a bottom of 2026. We can't be more precise than this. We talked about gold will underperform equity which did. And something similar we talked about small cap particularly will outperform gold from a three years perspective. It's a very important call where a lot of people ask, you know, "I have a large holding in gold." So, if somebody has three years, five year horizon, three small cap is the area which will give you phenomenal returns, even outperforming the gold. So, that's the call we highlighted the on the beginning of April month itself, and this is something I'm repeating again despite we have seen 20 to 30% move, even the micro cap index, Nifty mid cap, and small cap, everything has rallied sharply, uh more than the double of the Nifty levels itself. And we talked about focus on the under ownership. Under owned stock will rally, and this is a thesis which we talked about. And the biggest risk we highlighted was not only the foreign over over ownership. Now, the next risk in the market is the domestic over ownership, including mutual fund where all consensus trade where a lot of people have similar common holdings, and grossly over owned many of these name.

[00:08:46]Classic example is the banking and the IT space, which has been grossly over owned by the domestic institution also, and we have seen >> [clears throat] >> how badly they have performed in the current quarter also. So, it's a clear indication that under ownership is something you have to fight. You have to look for a uh hated territory stock. You have to look for a relatively cheap stock because I always said that India is going to going to remain expensive. So, on a relative basis, India will remain expensive as compared to any other emerging market. Yes, from the peak we have corrected, but in absolute term we are still expensive, but on the sleep on the relative we have corrected a lot.

[00:09:24]So, it could be a great opportunity to capitalize. And this was the thesis which we talked about uh uh sectoral we talked about energy. We have seen how power stocks have done extremely well, capital goods stocks have done well. He talked about data center biggest theme. Actually, [snorts] data center is much larger theme which includes energy or your telecom, your equipment, your fiber optics, or even you talk about some of the unique data-driven company or telecommunication company, they are the large beneficiary now and after this recent war we have seen a lot of attack happen on the data center which needs lot many global companies further diversify their approved presence in various other countries including India in a big way because it's a focus area and it seems they are and most important the safety aspect. So, some of these themes you talked about within pharma, the generic you talked about AI implementer which is very limited names are there and some of these names which we highlighted largely for our portfolios, but some of the bold one has done extremely well in today's context.

[00:10:28]Now, this is the portfolio exercise.

[00:10:33]Except our mid-cap portfolio, small-cap portfolio, largely our portfolio re-ramp which we started sometime back few quarters back has been largely contributed. Uh we are overweight NBFCs and insurance and asset management companies over banks. Our public sector exposure has come down significantly with our results. And we have pruned down some of the private sector names also. But we have added asset management company, insurance and we have pruned down a manufacturing stocks in a big way. Uh purely from the worry we have on this challenges which we have seen very recently. It is very difficult to visualize how the next quarter would be both from terms of raw materials and in this inventory front as well as distribution from the logistic point of view. So, we felt nobody can quantify that part and frankly speaking none of the management will talk very openly because people remain optimistic most of the time that things will change. And these are more from a risk uh preservation point of view the portfolios of purely from a risk perspective this one was taken to cut down manufacturing. Obviously, you can't cut down manufacturing 100% because major of service sector versus manufacturing obviously some of this will go to those manufacturing. So, we have also reduced FMCG and consumption which was slightly bullish for last many months. We thought we have seen up one round of up move and now we are building mid and small names in our portfolio.

[00:12:02]The good news is that impact cost has started correcting and volumes have started picking up. So, that's our broader thesis which we have. Okay. Now, coming back to the rotation sector rotation one of the last NFO on the SIF program point of view we were the first to launch a our SIF products. And I'll just want to stop for 2 minutes in the whole experience because we launched our first product in September, October or so.

[00:12:30]Last few months I can only say that any product that launch I always say takes few months to really stabilize because this segment was completely new from a market intermediary perspective as well as the regulator even from other vendors. You know, talk about clearing houses, custodians and even the NAV calculation part, risk management perspective. Everything was relatively new so everybody wants to go relatively.

[00:12:57]So, we are happy to share that we have stabilized 80% of our operation on the SIF front now. Another 20% get us stabilized in next one quarter or so because lot of we have built our own houses mapped later. We have built our own fixed connectivity around that. So, it's a we are now adding lot of thing on the high frequency algorithmic also which is going to be a continuous exercise. So, happy to share that the experience has been good. Team is able to digest a new thought process. And frankly speaking is a very important takeaway I've said on multiple forum.

[00:13:30]Uh when you start thinking uh how to generate a short idea when you want to generate alpha as compared to our original thinking that we are only long accounts guy and we have to think only from long perspective. Then suddenly the team has started looking for a shorter ideas also. The biggest advantage beneficiary is our existing mutual fund scheme. So let's say when we able to identify a particular stock or particular sector which looks weak from the short to and medium-term perspective, then obviously those are the short candidates which we can identify. But what is very important if you can identify that these name as a short names, then the first thought process come if we have any long exposure in any of our mutual fund scheme, let us unwind that also. And that has really helped us in last few months performance. And that thinking of looking for short ideas is actually helping our mutual fund schemes also in a big way. And as we keep on developing high frequency analytics, I think even these mutual fund schemes will be the biggest beneficiary because of share size which we have and as compared to SIF. So it's a good experience and this is the first time industry is actually experiencing how to manage your beta of the portfolio to compare the yields. Despite market has fallen, these schemes have fallen less.

[00:14:52]A lot of people thinking, "Okay, these are absolute return product." But we know everything will fall. None of the competition including us are offering absolute return product. We are only highlighting that we are able to manage or reduce our beta of the portfolio and hence your downside looks more protected in a very turbulent time. And as a reason, most of the high growth schemes are operating and as our hybrid scheme is also in a similar manner. But other three equity schemes including the sector rotation which we are looking at are relatively low risk from a relative to hybrid and relative to the active asset allocator which is largely multi-asset strategies.

[00:15:34]Now, coming to the SRF part on the sector rotation fund which we have to talk about briefly. Uh very interesting like how you run a hedge fund product, a long short book, few stocks long, few stocks short. Uh lot of people think in a market-neutral portfolio you run typically uh as a money manager we actually look at beta-neutral portfolio so that beta of the portfolio is completely hedged and enhanced.

[00:16:03]Uh we are not taking any meaningful market risk in that sense. Now, what is the unique part of this product is that SEBI has allowed us to have four sectoral uh thing. You cannot have unlimited sector then it lost its purpose so if they want a very focused approach and that's the reason we are calling it the long short sectoral fund and within bracket we wrote wrote focus.

[00:16:25]And why focus? Because only four sectors which is allowed. So, your long and short ideas on the four side, let's say this picture, if three sectors are long, one sector is short and we have covered the four sector from a a regulatory perspective. And this is a very important to explain the various combination which we want to talk about in next few slides. So, just NFO open on April 27th, it's closing on May 11th and after completing of this product we'll complete our bouquet of QSR product.

[00:16:56]Uh we are not in a hurry to launch any of the debt thing because we think viability is not there. Hybrid equity both we have complete because it's very important to understand we want to build a track record over period of time we understand how this product went. It's not only learning for the market, learning for us also, it's learning for the participants who are there. So, very important to launch a product. I'm not a believer of back testing that you just do some back testing and throw some unique numbers. How beautiful it has worked in the past, but this never happened in real life. So, we want to demonstrate in real life, and that's the best way to build a track record. Now, why this one? There's a very simple question comes to most of people. Okay.

[00:17:34]Now, very interesting thing we need to talk about rotation aspect. As lot of people understand quant, uh we are pick in sector rotation as well as the stock rotation. So, we are able to identify leaders and laggards keeps on changing on continuous basis, and this is something uh you sit down and analyze your this uh get this picture very clearly. We have given data from 2000 17. So, nearly 10 years data we have tried to showcase so that it will give you perspective how every quarter or in last 10 years, which sector was leading in terms of performance, which were underperforming, which were outperforming, and what sort of absolute return we this product has given. So, it will give you a very perfect answer that not a single sector has been constantly [snorts] continues to remain in the laggard or in the leader category and keeps on changing. And that's the beauty if you can able to flip or do sector rotation in a in a such a manner that you are able to mitigate mitigate your risk also, then it works beautifully. And also is the case, you know, we try to example how ranking has been there in 2017-18.

[00:18:50]Uh let's say let's take example of 2026.

[00:18:53]How metal performed this year so well for 5%? Energy, what banks, pharma, how these names have corrected. Real estate was the worst performer. And this is where IT the second worst performer.

[00:19:04]Auto was the third worst.

[00:19:06]FMCG is the fourth worst, and the fifth is the banking.

[00:19:10]What has done very well? Clearly, metals largely power these are the two sector actually dominated in 2026 but fairly good perspective which we're >> [clears throat] >> Let's understand the sector rotation and makes you know we talked about how this 10-year sector management how the high profile in discussion is there. Let's understand the problem we have highlighted this thing that it keeps on changing and what are the solution?

[00:19:36]Okay. So we are trying trying talking about that markets are cycle since and different sector leads at different times so it's not like same sector same stocks are doing things it's a myth.

[00:19:47]When people say oh these are blue chip companies. Okay. A lot of people we have grown with this season MNCs are blue chip companies. You know if you buy MNC let's say Hindustan Unilever in your portfolio never sell these now these are blue chip names and this is one of the big myth. We thought let's talk about even if you look at way back over 1960 onwards when Sensex was there or you from look at from 1990 or 2000 or 2010.

[00:20:12]If you really look at last 40-50 years of Sensex journey it was predominantly top 30 stocks of the in this country or so-called blue chips name today majority of the companies don't exist what was there in 1960 so it's what was there and forget 1960 let's look at 1990s or Harshad period. Okay.

[00:20:31]Some of the companies which are part of Sensex they don't exist today and only limited handful four or five names or six name maximum I will able to quantify these are the company still part of the Sensex so it's very important to understand the sector rotations are very important pieces and we have tried to depict quite well.

[00:20:52]Now let's understand the what sort of flexibility we get and when you talk about four sector. Okay.

[00:21:00]Now can we run only long exposure in our portfolio? The answer is big yes. You can run maximum four long exposure at any given time. Answer is yes, there's no need to have all short exposure all together. So, you can talk about all four longs and zero short exposure. So, effectively which means four sectors you can quantify. Second scenario where you could just do three longs and one short.

[00:21:29]And this is something we have to highlight it through sector A, B, C and D.

[00:21:36]Something similar for scenario three, two sector longs and two sector short and four scenario, three short and one long. That is also possible when market was horribly bad. You can even run like a short portfolio. Okay? And so, very unique so as compared to your flexi cap for multi SIF or the multi asset allocation type SIF or the hybrid type of fund. This is product will be relatively more risk like any theoretically any sectoral fund has relatively more risk. But obviously keep in mind it has more risk it means it has more rewards also. So, if you run your long short basket properly and the proper the skewness will be on higher side and hence your risk adjusted matrix will also will be high because it predominantly um the risk number will be high but returns number will be far higher than the risk which you are taking. So, it's very important. But obviously the both the calls are long short long and the risk you run and that's the strength [clears throat] of any money manager analyst comes into picture. So, the most important thesis if you are familiar with the quant style, you always talk about a money flow analytics. Multiple forum we have talked about. What is money flow analytics?

[00:22:53]Why money flow analytics is the backbone for this long short sector rotation long short fund? Because if you really look at what drives market, three important things drive when you say qualitative, quantitative, and behavior aspect. And it won't be quantified them saying that uh market is driven by the function of valuation analytic, the function of liquidity analytic, and it's a function of the risk appetite or sentiments. All three put together are important parameters to identify the fair value of a particular or a stock.

[00:23:25]Similarly, in money flow analytics, when we combine both liquidity analytic with the risk appetite analytics together, that gives me a money flow index. Which means how money will be shifted from one asset class to other, or one sector to other. And typically, if you look at the let's say talk about hedge fund will be the first fastest person to rotate their portfolio.

[00:23:50]And pension fund will be the last to rotate their portfolio. That's a very big difference. So, we are very clearly able to define how the money flow analytics work for us.

[00:24:01]Now, this is the basic data, how the uh equity arbitrage sort of thing what we can do, what the cash flow. So, it's a equity product, which means that any given time we have to deploy 60% equity exposure. Can I hedge 100% of my exposure? Answer is yes. Can I take over 25% naked exposure? Answer is yes. Okay.

[00:24:23]So, it's a combination which you can look at. And hence, we are saying that this is a sector uh focus sector portfolio with a long short benefit or a better management on the beta side. It's Now, if I have to really look at the genesis of sector rotation, we keep talking about how inflation cycle, commodity cycle, uh interest rate cycle, how they have interlinkages with the business cycle. So, there is linkages we try to spot on various cycles. And [snorts] something similar we are talking about when the macro changes over the lag effect it comes to the market and certain spot will sometime maybe employed volatility of a commodities market can give you some early signs of disturbance so if the case in the commodities market and maybe equity market will last to come into it because sheer the size of that market which differs so we are trying to look at various scenarios how market cycle changes you know and this is how it really impact this from a explanation perspective we are trying to give you.

[00:25:35]Those who are more familiar with our being relevant book and some of the presentation in the past we do highlights about cycle analytics and we talk about signs of production using mathematical cycles okay.

[00:25:49]Now how we talked about that April month crude will be caught.

[00:25:54]Remember when we said crude will show a rally and January we talked about crude commodity cycles particularly precious metal cycle is speaking of okay. Now this is the very interesting topic how various cycles have inter linkages you know and we also try to understand what circumstances particular cycle will have a will lead or have a lag effect historically we talk about some of the market talk about eight year cycle let's say in every year eight year Sensex makes higher new high or new low sort of thing but it is not necessary. Since 70% time let's say this has worked on people say oh that is the way it has worked so hence the probability of happening is high. We don't get into that aspect yes we also try to see and we always say predictive analytics is the not a deterministic sign but is a probabilistic sign. We as a house also try to see what could be the probability of that event getting paid out. So, whether you talk about interest rate cycle including war cycle, you know, weather cycle or you talk about risk appetite cycle or various data point which one putting together, we basically try to combine it and then try to form some opinion about it. Now, in terms of very simple how do you think what could be the predictive significant dynamics, you know, we let's talk about the linkages part. I'm not going to get into very much detail as as now. As I explained sometime when you say history repeats or cycle repeats or it rhymes, okay, these are the terminology we keep on hearing. What most important caveat which we want to talk about out here is that with over a period of 33 experience in the market, I always say it's not necessary it will happen like that.

[00:27:49]What is important to understand in what circumstances this particular cycle will be a leader or it will have a leading characteristic or a lagging characteristic. And that is very important to dissect when the what scenario is getting built. Now, easy very easy for me to talk in two minutes, but when we practice is a very difficult task when you get thousands of scenario how it's going to unfold and the help of machine learning to identify much easier than what we used to do in the past. So, obviously in today's world our own predictive analytics has actually strengthened further the way technology and the computing skill set increase.

[00:28:30]Now, when you talk about a long short things, really clearly how you identify long short opportunities simultaneous.

[00:28:38]It can be done in every sector.

[00:28:41]It can be done in the beyond particular sector also. So, it's very important for us to understand how the cycle opportunity turning the sector in from a purely from economic cycle of macro cycle or earning cycle or liquidity cycle, okay? Or you talk about even other analytics data or you talk about any possible combination we can get into it and we try to see see but as a house we always say we are a macro house from a very large macro perspective we come to micro and from there we try to rebuild. Okay, and there's something where the cycle analysis plays a very very very vital role for us. Now, let's talk about a few rules out here.

[00:29:24]So, we want to really clearly explain what exactly we can do in terms of portfolio construction rules, okay?

[00:29:31]If I have to talk about what sort of sector concentration you can do, so maximum four at a time, what sort of gross exposure you should have both long and short put together. We cannot have more than 100% exposure which effectively means the similar leverage allowed to us and derivative market is always very interesting. A lot of people consider more risky. It's but it's ultimately risk metrics.

[00:29:55]The moment you add within the derivative you add leverage angle to it. So, we say instead of 10 rupees you can take 100 rupees exposure the risk becomes much more larger. So, you have increased let's say margin for our calculation sake is 10% and effectively you have increased your exposure by nine times more than what you were doing earlier. So, that's very important that a mutual fund is not allowed so that way these products are relatively more safe.

[00:30:23]Now, we'll talk about net long exposure what we can do on the zero to 100% net short exposure is only zero to 25% single stock long maximum 10% and single stock short also is maximum 10%. So, it's an important thing to understand this is what has been defined and can I hedge 100% of my portfolio? Answer is absolutely yes.

[00:30:46]Now, some of the advantages of the sector rotation fund. See, sector rotation is a very interesting product, you know, but you require that money in the mindset of a long short. Lot of people understand that if I'm running long X amount, if I'm running short X amount, then I'm very comfortable association purely from a risk adjusted matrix looks very nice.

[00:31:06]But not necessarily that both of the cycles will play out in your favor. And that's the reason the high frequency analytics comes to picture because we don't want to bring our own personal biases.

[00:31:16]I don't like that. I like this.

[00:31:18]Because most of the things when you were when human beings take their decision, they are also slightly biased. So, key challenges that you have to avoid sector traps. It should not happen and stock has corrected and you say, "Yeah, it's a great buying opportunity." But it keeps on falling for next 2 years also.

[00:31:35]So, those are the value traps which one needs to avoid. Lot of people say, "Okay, I doesn't matter. I'm on a holiday. Then I can see." So, but ultimately you lose focus there. It's very important when you are on a holiday, you just focus on that aspect.

[00:31:49]But key aspect is the how you able to identify this inflection point and able to shift very quickly.

[00:31:57]So, active money management aspect. And obviously mutual fund is the whole tax efficient aspect. It's a great product in that sense. I mean, this is the way how you approach from a global macro to Indian macro to domestic theme to stock selection. And then come to stock selection. This is the way how the filter will work. This is a very detailed process on the how the investment on the quarter mind we work through Markov and how the sector rotation strategy will come. Uh this is some of the old presentation part of the SIF thing. Since we are celebrating 30 years of Quantum this year and we also have track record of 30 years of Quantum mind. Okay. So, I will stop it here and I'll open this the floor for question >> Mhm.

[00:37:03]>> Mhm.