Relevance of Budget has diluted, markets more mature, says Sandeep Tandon

Sandeep Tandon, Founder and CIO of Quant Group

The relevance of the Budget announcements has reduced and the markets have become more mature, says Sandeep Tandon, Founder and CIO of Quant Group. Tandon reasoned the markets now have access to more data points for policy announcements regularly and that has reduced the significance of the Budget. In his conversation with Moneycontrol, Tandon talks about the sectors where investors get their patience rewarded. Here are the edited excerpts:

What is your first take on this interim Budget?

The market has become much more mature now and the relevance of Budgets, especially the interim Budget, has diluted significantly the way it happens globally. Because you keep on getting so many data points regularly for policy announcements. The relevance of a Budget as a phenomenon, which used to be seen in the last many years has reduced, which is good. But overall I think despite the election year where many people expect a lot of popular stuff, I think it's a very mature Budget and the focus is on the fiscal deficit of 5.1 percent. The only disappointment would be the market expecting much higher capex. The spending aspect has reduced considerably as compared to what we have seen. We're talking about a growth of 11 percent versus 30 percent that we have seen in the last 3 years' average. That's the only disappointment. Otherwise, it's a reasonably good Budget.

Is there any disappointment on the FMCG front?

I don't think we should be disappointed up to that extent. Because of the phenomenal run we have seen post Covid . We are now seeing overall rural demand picking up post Covid, and the logistic challenges and inflation are subdued. We are more optimistic about consumption as a cycle. I think from this quarter onwards, the demand is coming back and the overall consumption theme anyway looks good. That's one of the reasons we launched our consumption fund very recently.

Are you moving away from Industrials?

We are not moving away because our thinking is that the easy phase of market and expectation, which we got, is largely over. But we remain very constructive from India's perspective. I always say this decade belongs to India. This maybe half-century belongs to India. India will emerge as a key player in the manufacturing sector. Look at the SME and mid-sized companies. We have never seen this sort of order book positions and excitement among entrepreneurs which we have seen in the last 6 or 12 months. So that is a very constructive background which we have from a longer-term perspective. This means that the mid and small cycle has not peaked out as compared to what a lot of people are expecting that the market is peaking out in this space. I think it's a new beginning. Maybe sector rotation and stock rotation will continue. But India looks amazingly good. And so it remains a buy on dips strategy for us.

What do you make of the public sector banks? Yields have fallen. Is that making the sector attractive?

We have been constructive on the public sector banks. We have been bullish on the space for the last 2-3 years. It remained very constructive from a long-term perspective. But yields have peaked out globally somewhere in September, October 2023. So it is on the declining side. From a near-term and medium-term perspective, yields have the potential to correct. We expect them to be closer to the 6.7 to 6.75 percent range in a year’s time. So it's a constructive space for public sector banks.

Do you think NBFCs have more advantages when market yields fall?

From a sentiment point of view, yes and they will be a beneficiary of that. But If I look at it from the market perspective, this sector has been trading in the most admired territory for a while. So from a market perspective, whether people will make money out of NBFC stocks looks very, very difficult versus private banks and even public sector banks.

The finance minister talked about EV and green energy segments. Does any of that sound exciting to you at this point?

Green energy as a thesis we think is going to stay from a longer-term perspective. But the challenge from the market perspective is that you don't find many companies, and even for the larger groups which are implementing this green energy thesis, hydrogen or renewables, it's a time-consuming process, so one has to be patient. It will take six, seven years to build something, what PM Modi is talking about. So maybe from 2028 till 2032, we'll see some meaningful numbers in this segment. Otherwise, right now, if I look at the stocks, they look very expensive. But we have the vision. It should be a strategic position or what I call a decadal view in the portfolio.

In all these categories, green hydrogen and EV, most of the stocks that you find are blended stocks where some part of the business is getting disrupted and some part of it is in the expansionary stage. How do you navigate that? Would you ignore them and go only for pure plays?

Yes, I agree. Whichever pure play is available, either they are very small or they are too expensive. So as a house, we have taken a conscious call not to get into these smaller names and look for a larger thesis. Some of the conglomerate companies are implementing these larger projects from a longer-term perspective. But again, they all also look slightly expensive right now. But if you have patience and vision for the next 8-10 years perspective, I think these are the areas where you will get exponential returns.

Is there a stock market play from the Budget announcement of building 2 crore rural houses and 1 crore solar rooftops? Can we invest in any of the housing finance or cement companies?

As I said, smaller names are anyway very expensive. So I will play with a larger thesis like infra. If I talk about construction companies, you want to talk about cement and metals companies. But there are limited names in pure-play solar panels. So I will play a larger thesis as a fund house rather than playing for the smaller names, which hardly have any liquidity, and have rallied a lot.

What do you think of railway names? There is the announcement that 40,000 bogies will be converted to Vande Bharat.

Some of these names look very interesting. But the only thing we have to see is to what extent this has been priced. The runaway moves that we have seen in the railway stocks and the railway related companies have been extraordinary. They have given multiple times returns in the last one-and-a-half years. So if somebody has that vision from that long-term perspective, yes, very good. But I would not like to react on an instant basis because this announcement is largely on expected lines and has been factored up to a large extent.

What is your prime hunting ground today?

Nothing new has emerged out of this thesis if you look at it from the government perspective and the market perspective. So larger thesis, power, energy, PSU, PSU banks, and large infra will continue. As I said, the Budget and interim Budget have lost their relevance. The traditional thesis which we have been talking about in the last many months will continue to perform from a long-term perspective.

All the things you have mentioned have been priced in and the good news is not impressing markets. So how do you approach the market?

Up to a certain extent, the construction companies and EPC companies may have some disappointment, because of the capex announcement. So maybe the capital goods stocks might peak out or they may stagnate from a medium to near-term perspective. But from the long-term perspective they also look very good. So I would like to remain focused on themes like energy, PSU, metals and cement. These are the larger themes which I would like to stick with.

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